The Least-Leveraged Mortgage REITs and Their Big Yields

I recently listed the most highly leveraged mortgage REITs, or mREITs. I did this because there's at least some uncertainty about the industry's ability to avoid onerous regulation that "could threaten mortgage REIT returns by either restricting the massive amounts of debt used to boost returns or eliminating their tax exempt status." But even if no negative regulation surfaces, it's important to know the financing strategies being used.

Today, I want to look at the other end of the spectrum -- the mortgage REITs that get it done with low debt levels.

The highly leveraged mREITs mostly deal in agency securities, which are guaranteed by government-ish entities like Fannie Mae and Freddie Mac. The lower credit risk of the agency securities allow for this debt-stacking.

Meanwhile, on the lower-leveraged end, we see mREITs that are focused on commercial mortgages and non-agency-guaranteed residential mortgages.

Below are the sizeable mortgage REITs (over $200 million in market capitalization) with the lowest leverage. I've also included their focus and dividend yields.

Company Name


Dividend Yield

Leverage (Assets/Equity)

Colony Financial (NYS: CLNY) Commercial 8.5% 1.1
CreXus (NYS: CXS) Commercial 11.6% 1.1
Starwood Property Trust (NYS: STWD) Commercial 9.9% 1.5
PennyMac Mortgage Investment Trust (NYS: PMT) Non-agency residential 12.2% 1.7
Chimera (NYS: CIM) Non-agency residential 18.3% 2.9
Apollo Commercial Real Estate Finance (NYS: ARI) Commercial 11.2% 3.1
NorthStar Realty Finance (NYS: NRF) Commercial 12% 4.3

Source: Capital IQ, a division of Standard & Poor's.

Like their highly leveraged counterparts, we see the less-leveraged REITs also achieve high returns that (as required)  get paid out as high dividend yields. While the former juice their returns by taking on high amounts of debt, the latter do so by investing in riskier loans and securities (and thus earning higher interest rates). Broadly speaking, the difference is between more financing risk on the one hand, and more portfolio risk on the other.

Pick your poison .. or don't. For a look at some less-complex dividend stocks, check out the popular Motley Fool free report: "13 High-Yielding Stocks to Buy Today." Click here for a free copy.

At the time this article was published

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If you are in a home and want to refinance, 2 things are absolutely key. First, you must have meaningful equity in your home. Second, you must have a good credit score. But in this economy if you do not have both of them still you could get a good rate, Search online for "123 Refinance" they gave me the lowest rate of 3.45% my credit history is not so good.

September 14 2011 at 3:29 AM Report abuse rate up rate down Reply