We’re seeing several high-yield themes working well and that would be lending to small- to medium-sized businesses; that would be owning debt in the corporate market; that would be looking for distressed credits out there, where balance sheets are under repair still, those are doing well.
In addition to those, income investors will want to be in mortgage real estate investment trusts (mREITs), which can borrow money for almost next to nothing and put it in secured mortgages.
The general tone of the real-estate business is getting better. So, investors will want to definitely participate in the top high-yield mREIT plays.
Here’s the rundown three of the best mortgage REITs investors could buy into right now:
Starwood Property Trust, Inc. (STWD)
The first mREIT that comes to mind is Starwood Property Trust, Inc. (STWD), which is originating its own mortgages, its own loans and buying into physical assets. Starwood is the largest specialty financed REIT in the country, with a current yield of 8.1%.
Starwood stock got hit hard when it came out and did a big secondary offering about two months ago, but then Starwood paid a dividend, came in with really nice earnings and the stock is back up to $24.
Starwood is an institutional darling, so it does have a lot of institutional following. Any future names you’ll hear me recommend would definitely be in that vein of the higher quality, more “stock for all portfolios,” and for all types of risk categories.
Arlington Asset Investment Corp (AI)
Another nice winner has been Arlington Asset Investment Corp (AI). This is a premier mREIT, focusing mainly on residential mortgages and with headquarters in the Washington, D.C. metropolitan area.
AI is currently trading at $28, less than a dollar from its 52-week high, and still paying a 12.5% yield. AI has just been a good performer all along, and it’s one that you just wish you had more of, if you already do own AI.
PowerShares KBW High-Dividend Yield Financial (KBWD)
And the final name I’d like to mention today is PowerShares KBW High-Dividend Yield Financial (KBWD). KBWD is an exchange-traded fund that is a nice way to cast a net over the mortgage REIT sector, which is starting to get back in gear in terms of market favorability.
All the mREITs got hit hard in the middle of the year, when the 10-year bond went to 3%. It looked like the cost of borrowing money was going to go up, which is a major negative to the REIT sector.
But, at this juncture, KBWD is trading at $25.80, with a current yield of 8.1%; it pays monthly — and, again, it’s just a nice basket of all the best-performing REITs and some business development companies.
Bryan Perry is the editor of Cash Machine, a newsletter focused on high-yield income investing with the goal of maintaining a blended total yield of 10% across two portfolios. And most recently, Bryan introduced Cash Machine Trader. With this service, he’s increasing the income stream potential even further by using covered call writing strategies to generate yield in the form of option premium — on top of capital appreciation income from well-known stocks.