Why Most Mortgage REITs Suck

For investors who are on the hunt for income paying stocks, one the first types of investments that they usually come across are mortgage REITs. These stocks always come with significantly higher yields than what you’d typically find from consumer stapes, utilities, and regular equity REITs. Companies like AGNC, Dynex Capital, and New York Mortgage Trust usually offer yields anywhere from 8% on the low end to over 15% on the high end. What’s more is that a good amount of these companies pay monthly dividends, only adding to their appeal. But what’s unfortunate is that, out of all the high yielding types of investments that exist, mortgage REITs are almost always the worst in terms of performance.

According to the National Association of Real Estate Investment Trusts, or NAREIT, the average total return over the past 20 years in the entire mREIT sector was only 1.9%. That’s not just in terms of share price, but also factoring in those huge dividends. This far underperforms other asset classes that provide high dividends, and in my opinion, a lot of these mREITs discourage investors from pursuing higher yielding investments in general. I get a lot of questions about these companies, and a lot of people are often wondering why on earth are the vast majority of these companies so bad? Because based on how these businesses describe themselves, they sound like really safe investments. But the reality is, most aren’t, and have pretty poor long term track records. In this video I’ll go into how mortgage REITs work, and explain why most mortgage REITs are usually bad performers over time.

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