Bullish Signals At This 12% Yielding mREIT
Adnan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Invesco Mortgage Capital (NYSE: IVR) reported insider buying, signaling management’s confidence in the company’s future. Let's dive in and summarize the recent insider buying at Invesco, and compare the company's performance with that of its peers.
Invesco Mortgage Capital reported insider buying by its CEO Richard King. King added 8% to his stake in Invesco Mortgage after he bought $100,000 worth of shares at an average price of $20.52 per share. The CEO increased his stake on Friday, March 8, 2013. Shares of Invesco Mortgage are currently exchanging hands at $21.05. Therefore, it can be concluded that the CEO’s insight into the company’s future leads him to believe that the shares will appreciate in value. According to Reuters, three other directors of the company have bought 590 shares each since the beginning of the year. This is the extent of insiders’ confidence in the company’s future.
Invesco Mortgage Capital operates in the United States as a hybrid mortgage REIT. Given the challenging times and the Fed’s repeated commitment to keep interest rates low, hybrid mREITs are expected to outperform. At the end of the fourth quarter, IVR had large chunks of 30-year fixed rate Agency MBS. Overall, around 69% of the company’s investment portfolio was invested in Agency MBS, followed by 17% of non-Agency MBS. The company also had 11% of its portfolio invested in commercial mortgage backed securities by the end of the fourth quarter. Besides all this, some Agency CMOs form part of its investments. These investments provide diversification within the mortgage REITs sector.
IVR had a solid fourth quarter, as it reported strong earnings. The top line (interest income) grew 3.5% on the increase in interest-yielding assets. However, like most mREITs, IVR also reported a decline in its average asset yield during the quarter. Finally, 40% growth in other income supported the 7.5% growth in IVR’s fourth quarter bottom line.
Among other mREITs, Western Asset Mortgage Capital (NYSE: WMC) also reported insider buying by its CFO. The CFO purchased over 10,000 shares of the company at an average price of $21.31 per share. WMC is a similar hybrid mREIT with Agency and non-Agency RMBS, and CMO’s in its investment portfolio. This 17% dividend yielder reported stronger than expected fourth quarter results, as its EPS of $1.05 surpassed expectations by $0.18. Average asset yield increased 7 bps, resulting in a 5 bps expansion in the fourth quarter net interest rate spread for WMC.
Invesco Mortgage also competes with American Capital Mortgage (NASDAQ: MTGE). Around 90% of the company’s portfolio is Agency RMBS, while the remainder is non-Agency RMBS. Within the Agency RMBS portfolio, the 30-year fixed rate securities dominate, accounting for 63%, followed by 20-year fixed rate at 35% of the Agency RMBS. MTGE also reported solid performance for the fourth quarter. Average asset yield increased 11 bps, while it realized significant gains on the sale of MBS during the quarter. Both factors contributed to help double MTGE’s bottom line.
Given the prevailing challenging macroeconomic environment, hybrid REITs provide an excellent opportunity to enhance your regular income. Invesco Mortgage reported a strong fourth quarter, and the insiders’ bullishness leads me to think further growth in the bottom line can be expected in the coming quarters. Therefore, investors should consider investing in Invesco Mortgage.
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