REITs stocks are sharply falling, one would call it a free fall. Even famous, strong and gigantic companies such as Annaly Capital Management is down by 4.2%, American Capital Agency by 3.8%, and ARMOUR Residential (ARR) by 4.4%. What does it mean for you if you hold those stocks?
A tough year for mREITs
Let’s begin with the fact that it’s been a tough year for mREITs in general. As the Federal Reserve has sought to drive down long-term interest rates via quantitative easing, the interest rate spread that these funds rely on to make money has contracted. Since the third quarter of last year, Annaly’s went from 2.08% down to 1.02% today, and American Capital’s from 2.14% down to 1.42%.
It follows that the compression of interest rates has obligated these companies to decrease their lucrative dividends payouts. Over the last 12 months, Annaly’s quarterly payout went from $0.60 a share down to $0.50, and American Capital’s from $1.40 a share to $1.25. And this, in turn, has put downward pressure on many of these companies’ stock prices.
What’s an income investor to do?
While many analysts and commentators have been anticipating a downward move in mREIT stock prices, that is no consolation to investors currently holding shares in the likes of Annaly, American Capital, or Armour Residential. To those shareholders, I say it’s my opinion that the market is overreacting to general trends that we’ve seen coming for some time now. Investors should avoid the allure of trading stocks on the heels of information like this. What investors should do instead is educate themselves further about the companies they own.
Personally I am sitting tight since I believe this is an overreaction of the market and those companies will recover. More to that I will be purchasing more shares as soon as this free fall ends or I will spot a sign of the end and strength. Many investors will be attracted by nice yield which in case of ARR is now breaking 16%. What a great yield on cost when buying now.
Source: The Motley Fool