The world of real estate investment trusts (REITs) offers a wide range of opportunities for investors. One particular area of interest is mortgage REITs (mREITs) - companies that invest in residential and commercial mortgages, as well as mortgage-backed securities. In this article, we will explore the top mortgage REITs to consider for investment in today's market.
Ellington Residential Mortgage REIT (NYSE: EARN)
Ellington Residential Mortgage REIT is a Connecticut-based company that specializes in acquiring, investing in, and managing residential mortgages and real estate-related assets. Despite its relatively small market cap of $144 million, Ellington has shown resilience and recovered quickly from the drop in prices caused by the COVID-19 pandemic. With mREITs currently undervalued, Ellington presents an exciting opportunity for investors looking to diversify their portfolios.
Arbor Realty Trust Inc. (NYSE: ABR)
Arbor Realty Trust is a New York-based REIT that focuses on structured finance assets in the multi-family and commercial real estate markets. With a market cap of $1.77 billion, Arbor has surpassed its pre-pandemic performance levels and is experiencing highs not seen in ten years. The company's emphasis on multi-family homes in urban centers, where demand is high, positions it for continued growth. Investors can take advantage of Arbor's high-yielding dividends and the promising outlook for the multi-family housing market.
New Residential Investment Corp (NYSE: NRZ)
New Residential Investment Corp is the third-largest mREIT in the sector. With a focus on the residential real estate market, the company invests in excess mortgage servicing rights, non-agency residential mortgage-backed securities, and other related assets. While New Residential Investment Corp has been slower to recover from the COVID market crash compared to its peers, this undervalued mREIT presents a unique opportunity for investors. As people continue to stay home, make improvements, and settle into their residential properties, New Residential Investment Corp stands to benefit in the coming months.
Commercial Mortgage REITs
Commercial mortgage REITs offer another avenue for investment in the real estate market. Two notable options to consider are Realty Income (NYSE: O) and Apollo Commercial Real Estate Finance Inc. (NYSE: ARI).
Realty Income (NYSE: O)
Realty Income is a commercial REIT that specializes in single-tenant properties such as supermarkets, drug stores, and discount stores. While the company experienced a significant hit during the pandemic, its focus on leases where tenants pay taxes, insurance, and maintenance costs themselves has helped it recover steadily. As Realty Income climbs back up in the stock market, now may be an opportune time to consider investing.
Apollo Commercial Real Estate Finance Inc. (NYSE: ARI)
Apollo Commercial Real Estate Finance is unique in its geographical diversification, operating in both the U.S. and Europe. The company primarily focuses on senior mortgages and mezzanine loans, using commercial real estate as collateral. Like many mREITs, Apollo offers attractive dividends and payouts. While it experienced challenges due to COVID-19, the company has seen steady growth and is rapidly returning to pre-pandemic levels. Investors looking for an international presence combined with high dividends should consider Apollo.
Largest Mortgage REITs
For those seeking larger REITs with established market presence, Annaly Capital Management (NYSE: NLY) and AGNC Investment Corp. (NASDAQ: AGNC) are worth considering.
Annaly Capital Management (NYSE: NLY)
Annaly Capital Management is the largest mortgage REIT in terms of market cap. The company specializes in investing borrowed money into primary mortgage-backed securities, generating profits from the net interest paid between its assets and borrowing costs. With a portfolio of over $100 billion in assets, Annaly offers investors stability and a high dividend yield of 10.38%. While the pandemic impacted Annaly's stock price, the company has shown consistent growth and is on track to reach pre-pandemic levels.
AGNC Investment Corp. (NASDAQ: AGNC)
AGNC Investment Corp. is another substantial mREIT that primarily invests in mortgages and mortgage-backed securities. Based in Maryland, AGNC operates on a leveraged basis, offering investors the potential for significant returns. Despite the challenges of the pandemic, AGNC has made a strong recovery throughout 2021. As the market continues to improve, investing in larger mREITs like AGNC could prove highly lucrative.
Cheap Mortgage REITs
Investors looking for affordable options in the mortgage REIT market may find value in Arlington Asset Investment. With headquarters in Virginia, Arlington borrows money through short-term repurchase agreements and invests in mortgage-backed securities. Despite a challenging trading history, Arlington's current low price of $3.85 per share presents an enticing opportunity. As the market rebounds and mortgage REITs gain momentum, Arlington could be a hidden gem for investors.
Should You Invest in Mortgage REITs?
While mortgage REITs are still recovering from the effects of COVID-19, their stocks are on the rise and present an excellent investment opportunity. Record low prices indicate the potential for substantial returns. However, it's important to act quickly, as waiting too long could mean missing out on the trend.
Mortgage REITs: Final Thoughts
The pandemic has undoubtedly created an unprecedented investment environment. While mortgage-backed securities played a role in the 2008 economic collapse, the current market upswing is poised to be just as momentous. Now is an opportune time to jump on the mortgage REIT trend and reap the benefits of this evolving investment landscape.
