Data Bending in mREITs’ Favor

by Bryan Perry | March 11, 2013 9:09 am

A slew of economic data heading into the spring is painting an awfully rosy picture — especially for mortgage REIT stocks.

Last week, the Department of Labor’s report showed the economy adding 236,000 jobs[1], well ahead of the consensus estimates calling for a gain of 178,000. The unemployment rate fell to 7.7% from 7.9% and the market has added to its March gains as a result.

With such an upside surprise, one would have thought the reaction would be more euphoric, but the major averages only moved ahead marginally — still, we’ll gladly take it, given the run-up prior to the data. In any event, it’s a good sign to see the jobs market firm up, especially going into the sequestration and all its purported doom and gloom.

In addition, the banks all released results from their annual stress tests[2] regarding balance-sheet creditworthiness — and for the most part, the U.S. financial system is on very solid ground in terms of capital ratios. The bump in rates on the long end could excite the housing and refinance markets as consumers fear paying up for credit in the months ahead if the momentum continues. And that in turn should excited investors eyeballing the mortgage REIT space.

One mREIT that I feel very bullish about is Arlington Asset Investment (NYSE:AI[3]).

Arlington Asset Investment, as its name suggests, is headquartered in the Washington, D.C. metropolitan area, and invests primarily in residential mortgage-backed securities, either issued by or guaranteed by the U.S. government.

I was very impressed by the company’s latest earnings report, which came in just before I initially recommended it to my subscribers. In Q4 2012, Arlington Asset Investment reported earnings per share of $1.25 versus analyst estimates of $1.01, beating the Street by 23.8%.

AI made a big boost to its dividend back in 2011, and has maintained that hefty 87.5-cent quarterly payout ever since. That sum currently translates into a whopping 13.5% yield.

Shares currently are making a run higher following a lackluster 2012, but they remain deeply discounted, trading at just 0.71 of their book value.

AI is expected to pay out its next dividend sometime this month, so buy on the shares’ next trip under $25.50 and don’t miss out.

Bryan Perry is editor of Cash Machine[4], a newsletter focused on dividends and income investing. 

  1. showed the economy adding 236,000 jobs:
  2. results from their annual stress tests:
  3. AI:
  4. Cash Machine:

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