Two Harbors Investment
Dividend Yield: 17.7%
As of the last look, Two Harbors Investment (NYSE:TWO) was paying out almost 18% of its value as a dividend. That’s quite high, even by non-agency-backed REIT standards. However — and despite the bullish chatter that so often accompanies the investment vehicle — it’s one of those “too good to be true” scenarios.
Many will dismiss the idea. After all, an investor only needs to look at the headlines to see that every media source directly or indirectly suggests Two Harbors is a great way to reap huge rewards indefinitely.
What’s not as blatant is the fact that the Federal Reserve is buying long-term mortgage securities with the ultimate goal of whittling their yields lower.
So far, none of the major mREITs (well, their investors) seem to care, as they haven’t been backing off on their buying efforts. In fact, TWO is the early leader in InvestorPlace‘s 10 Best Stocks for 2013 contest with 12% gains since Jan. 1. However, when the pendulum finally swings the other way (and it will — it’s the Fed), the leveraged nature of these REITS exaggerates the negative impact just as much as it exaggerates the upside.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.