As the economy cools down and inflation rates decline, the spotlight is shifting towards the possibility of another interest rate cut. Federal Reserve Chairman Jerome Powell’s recent remarks, stating that the economy is in a “solid shape,” have sparked optimism among mortgage real estate investment trusts (mREITs). These trusts typically thrive in low-interest-rate environments, as their borrowing costs decrease, widening their net interest margin. This boost in profitability can lead to increased earnings and dividends for investors.
One analyst, Donald Fandetti from Wells Fargo, has taken notice of this trend and upgraded two high-yielding mREITs. AGNC Investment Corp., which invests in mortgage-backed securities (MBS) issued by government-sponsored enterprises, has been a consistent performer since its IPO in 2008. With a current dividend yield of 13.8% and an annual payout of $1.44 monthly, AGNC is an attractive option for income-seeking investors. Fandetti upgraded AGNC from Equal Weight to Overweight, raising the price target from $10 to $12.
Another mREIT that caught Fandetti’s attention is Annaly Capital Management, Inc. As one of the largest mortgage REITs in the US, Annaly invests primarily in MBS and other real estate-related assets. With a current dividend yield of 13% and an annual dividend of $2.60 quarterly, Annaly offers an appealing combination of income and growth potential. Fandetti upgraded Annaly from Equal Weight to Overweight, raising the price target from $19 to $23. Annaly’s partnership with Rocket Companies to expand its mortgage rights servicing business is expected to drive future growth.
These upgrades suggest that the residential real estate market may be poised for a rebound, driven by falling mortgage rates and increasing demand for mortgages. As the economy continues to stabilize, mREITs like AGNC and Annaly could benefit from the low-interest-rate environment, making them attractive options for investors seeking high yields and income growth.
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