Invesco Mortgage Capital Is the Right REIT Even After Short Squeeze Fizzles

Income-focused investors should be clamoring over Invesco Mortgage Capital (NYSE:IVR), a mortgage REIT (real estate investment trust) with a billion-dollar market capitalization. Yet, oddly enough, IVR stock remains largely under appreciated by the trading community.

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There was talk of a possible short squeeze, which InvestorPlace contributor Brenden Rearick reported on. And indeed, there was a sudden run-up in the share price.

However, IVR stock dropped just a few days later, almost as quickly as it popped. It’s a textbook example of how difficult it can be to trade stocks based on short squeezes.

Trying to capture gains from rapid rallies might not be the best strategy, after all. Instead, we can conduct our due diligence on Invesco Mortgage Capital and learn why it may be attractive to income seekers.

A Closer Look at IVR Stock

I’ll admit, there may have been a Reddit-fueled short squeeze with IVR stock in early June. Or at least, there could have been the rumor of an impending short squeeze, followed by a hype-driven rally.

On June 9, Rearick revealed that mentions of the stock on the subreddit r/WallStreetBets were up by more than 1,250% in a 24-hour period.

Furthermore, Rearick observed that 17.5% of Invesco Mortgage Capital shares were being sold short at that time. As he said, “when short interest gets higher, the likelihood of a Reddit tidal wave goes up.”

This certainly may have been a contributing factor as IVR stock soared from $3.36 on June 4 to a 52-week high of $4.60 on June 14.

That might not sound like a huge gain. Yet, it represents a price increase of around 37% in a week and a half.

But then, by July 7, IVR stock was down to $3.45. That’s bad news for folks who bought shares during the peak hype phase – a strategy which I generally do not recommend.

On the other hand, if you’re just learning about Invesco Mortgage Capital now or you’ve just been sitting on the sidelines, then this could be a prime dip-buying opportunity.

Good News for Income Investors

Real-estate companies are sometimes known for offering dividends to their shareholders. Invesco Mortgage Capital would certainly fit into this category.

Not long ago, the company’s board of directors declared a 9-cents-per-share cash dividend per share of common stock for the second quarter of 2021.

That’s pretty good when we consider the low price of IVR stock. And, one of my favorite long-term investing strategies is to leverage the magic of dividend compounding.

By that, I mean re-investing the dividends into more Invesco Mortgage Capital shares, so that your returns can grow even faster.

It’s also nice to know that the company’s latest common-stock dividend declaration represents an increase. That’s because in 2020’s fourth quarter, the dividend was 8 cents per common share.

Housing Market Heats Up

As an investment company, Invesco Mortgage Capital primarily focuses on mortgage-backed securities and other mortgage-related assets.

The company appears to be doing well in this area. For the first quarter of 2021, Invesco Mortgage Capital reported core earnings of 11 cents per common share.

That’s an improvement over the 10 cents per common share reported in the prior quarter.

This may be an ideal time to consider an investment in IVR stock. Citing, The Washington Post reported that the median price for active U.S. home listings grew to $380,000 in May 2021.

That represents a record high. It also signifies a 15.2% increase compared to the median listing of May 2020.

Meanwhile, Redfin reported that in May 2021, 52% of homes sold for more than their list price. That’s double the 26% recorded in the year-ago month.

It’s conceivable, then, that low-priced IVR stock doesn’t yet reflect the lucrative U.S. housing market. So, there might be a bargain to be found here.

The Bottom Line

It’s possible that Invesco Mortgage Capital was a short-squeeze target among social-media traders.

Sure, it’s important to be aware of these developments. Yet, they don’t have to be an investor’s sole focus.

IVR stock should be attractive to dividend collectors and real-estate market enthusiasts. And if a Reddit-driven run-up happens to occur, that’s just the icing on the cake.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

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