When assessing mortgage real estate investment trusts (REITs), one factor to consider is the stock price should never trade at a premium to the book value more than its dividend yield.
Additionally, mortgage REITs tend to have higher yields than equity REITs, achieving a five year dividend yield of 10.8%.
While interest rates are rising increasing the cost of capital to borrow, equity REITs may have to dilute its investors to raise capital or debt. While mortgage REITs can change the terms of the loan agreements to better hedge against rising interest rates, such as locking into floating rate loans. Read on to learn more about two mortgage real estate investment trusts trending below their book values.
- Rithm Capital Corporation (NYSE: RITM) is offering a dividend yield of 12.97% or $1.00 per share annually, using quarterly payments, with a track record of increasing its dividends once in the past year. The New York firm operates as a mortgage real estate investment trust that provides capital and services to the real estate and financial services industries. It has a book value per share of $12.28 and had quarterly origination funded the production of $19.1 billion unpaid principal balance (UPB), down from $26.9 billion (UPB) in the first quarter of 2022. The firm also grew its single-family rental portfolio by 324 units in the second quarter.
- Blackstone (NYSE:BX) Mortgage Trust Inc. (NYSE: BXMT) is offering a dividend yield of 10.60% or $2.48 per share annually, making quarterly payments, with a track record of increasing its dividend once in the past year. Blackstone Mortgage Trust is a real estate finance company primarily involved in the origination and purchase of senior loans collateralized by commercial properties in North America, Europe, and Australia. The vast majority of the company's asset portfolio consists of floating rate loans secured by priority mortgages. In the second quarter, loan originations of $3 billion backed by top sponsors and high-quality assets, in high-conviction sectors such as travel and leisure, multifamily, industrial, and new-build office. Additionally, the portfolio has $2.8 billion of loan fundings driving a net $1.4 billion increase in investments outstanding. As of June 30, Blackstone has a book value per share of $27.17 per share.