REIT: New York Mortgage (NYMT)
There are two basic types of REITs – those that hold real property and those that hold mortgages on property (mortgage or mREITs). Among mREITs, New York Mortgage (NYMT) is a so-called “hybrid mREIT”, meaning that it holds a combination of federally guaranteed (agency) and non-agency debt, like commercial mortgage-backed securities (CMBS).
If your eyes are glazing over with that explanation here are two factors about NYMT that will lift the fog: First, a significant share of NYMT’s capital is invested in multifamily housing. And secondly, NYMT has a monster current dividend yield of 13.8%. While it’s common for mREITs to have higher dividends than their property-based cousins because they take advantage of interest rate spreads, NYMT’s yield is eye-popping.
Riding the growth in multifamily homes, NYMT is up 13% this year. Because mREITs use leverage to invest in mortgage debt, they tend to be riskier than property-based REITs – they’re more vulnerable to interest rate fluctuations. A rising rate environment is anathema to mREITs, and NYMT is no exception … but I think the growth in the multifamily sector plus the hefty dividend will provide solid rewards for investors willing to stomach a little more risk.