Ben Bernanke's Gift of High Yield, No Debt Stocks
Jonathan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
When Federal Reserve Chairman Ben Bernanke strides to the podium at Jackson Hole in late August to speak, the entire mortgage investment industry should rise up and cheer.
The stock holders for companies in this sector such Ellington Financial LLC, Invesco Mortgage Capital (NYSE: IVR), Anworth Mortgage Asset (NYSE: ANH), PennyMac Mortgage Investment (NYSE: PMT), and CYS Investments (NYSE: CYS) should all join in the standing ovation. Due to Bernanke's commitment to maintaining a low interest rate environment, the mortgage investment industry has prospered, allowing for firms to offer double digit dividend yields while sporting balance sheets with little or no debt. Comparing the total return of these investment firms with a Wall Street icon like Goldman Sachs (NYSE: GS), is startling.
A company operating in the mortgage investment sector like Anworth, "...invests in the fixed income and real estate markets of the United States. It primarily invests in United States agency mortgage-backed securities issued or guaranteed by United States government sponsored entities including mortgage pass-through certificates, collateralized mortgage obligations, and other real estate securities, on a leveraged basis."
When interest rates are low or falling, these firms prosper as mortgage assets increase in value. This has certainly been the case under the regime of Federal Reserve Chairman Ben Bernanke. The shareholders of these firms also have seen increases in value. This will continue until interest rates rise again.
Anworth is up 11.32% for 2012. The dividend yield is 10.03%. Just as impressive as this dividend income is a balance sheet that is virtually debt-free. At present, the debt-to-equity ratio for Anworth is just 0.03. By contrast, the dividend yield offered by Goldman Sachs is just 1.78%.
At Ellington Financial, there is no debt. Goldman Sachs has a debt-to-equity ratio of 3.84, in comparison. That means it requires almost $4 in borrowing for Goldman Sachs to create every $1 of shareholder equity. Not only did Ellington Financial not have to rattle the tin cup to create value for those owning the stock, it rewards them even more with a dividend yield of 12.47%.
Also debt free is Invesco Mortgage Capital. The dividend income from Invesco Mortgage Capital is 13.96%. Its profit margin is 57.94%. The profit margin for Goldman Sachs is just 10.86%.
The profit margin at PennyMac is 46.21%. Almost debt free, the dividend yield from PennyMac is 10.09%. This has been a very pleasing combination for Wall Street, as the stock is up 42.58% for 2012.
CYS tops the profit margin focus, registering one of 118.20%. This is not a short-term jump as earnings-per-share growth over the past five years for CYS has been 61.66%. Over the past five years, sales growth is up by 37.11%. From this performance, a dividend yield of 14.26% of its the very pleasing result for shareholders.
This should continue for the mortgage investment industry as Federal Reserve Chairman Bernanke has pledged to maintain a low interest rate environment until at least 2014. This is likely to last much longer. In its program to suppress interest rates through re-capitalizing the global financial system, the Federal has bought, literally, trillions in assets.
These have been purchased from both private and public entities, both foreign and domestic. The only way the Federal Reserve can process the more than $3 trillion on its balance sheet in a positive fashion is through a low interest rate environment so the value of its assets are buttressed. Should interest rates rise, it would vitiate the value of the trillions in financial assets on the balance sheet of the Federal Reserve, destroying the global economy.
From this, the Invesco, Ellington Financial, PennyMac, Anworth, and CYS should continue to prosper. Not only will that permit double digit income payments to the shareholders for the future, but also for the balance sheets to eschew debt. That will allow for the share prices to continue to rise, enhancing the total return....to the envy of the those owning Goldman Sachs' stock.
jonathanyates13 has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Goldman Sachs Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.