Welcome, yield hogs.
We’ve got a few shares to cover briefly, then I’ll provide the charts for the sector. This is my first time publishing the charts through Barchart, so this is an experiment in how well the charts work. Let me know what you think.
AGNC Investment Corp. (AGNC) is a mortgage REIT trading at an unfavorable valuation. The price-to-book is way too high. Colorado Wealth Management Fund uses exclusive estimates for current book value to establish ratings. We’re looking at AGNC sporting a huge premium to book value. It isn’t warranted. The price is propped up by “Core EPS” but the earnings should decline over time. We have a bearish view on AGNC. In the charts further down, you’ll see price-to-book using trailing book values. We provide those charts for free. Book value changes over time, but it’s still a dramatic premium. Investors believe lower interest rates will help AGNC, but volatility in interest rates should be a bigger concern. While lower rates sounds nice, they are not guaranteed. Regardless, AGNC would prefer any change in interest rates to be slow.
If investors own AGNC and want a better way to maintain their exposure to a portfolio of agency MBS, Dynex Capital (DX) is a better choice. The valuation is dramatically lower because DX is reporting lower earnings. The biggest difference between the two REITs is really the accounting. The way AGNC is structured results in reporting higher Core EPS even when the actual results are very similar. It’s a flaw in the way Core EPS gets calculated. Consequently, investors in AGNC could swap to DX if they want to maintain their exposure without the absurd premium.
Blackstone Secured Lending Fund (BXSL) is a BDC (Business Development Company). The BDC’s have generally performed better than mortgage REITs over long periods. Shares still trade at a modest premium to book value. We’re estimating about 10% based on $29.95 today. Our estimate for current book value is $27.25, which is only slightly above the $27.19 value from the end of Q2 2024. The changes in book value for BDCs are usually much smaller than the changes for mortgage REITs.
You may know me better as Colorado Wealth Management Fund. That’s the brand name I built on Seeking Alpha. I expected to publish for a few years and then shift to asset management, so it made sense to build the brand name. As life happens, I discovered that my passion was research. So I pivoted to focus on research. Eventually I even created my own website for my research and created a dedicated space for Colorado Wealth Management Fund’s free articles.
I regularly encourage investors to focus on preferred shares for this sector rather than common shares. The preferred shares typically offer a much better total shareholder return over long periods and they do it with far less volatile. Consequently, it’s a much better choice for long-term investors. The preferred share guides also provide some opportunities to swap between similar shares, which can enhance returns.
If you’re interested in preferred shares, make sure to check out our huge guide to preferred shares.
You know it’s great, because I wrote it. You know it’s long, because it’s over 67 pages. Examples take space.
We could’ve had less examples, but then it wouldn’t be as good.
Many readers have told me it’s their primary resource for learning how preferred shares work.
It took a few years to bring it all together, so I hope readers enjoy it.
The cornerstone of mortgage REIT analysis is book value. Analyzing earnings should occur after investors firmly understand book value. Unfortunately, many investors get this backward. Without understanding book value, they are easily misinformed about earnings. That’s why I built a huge guide to mortgage REIT book values.
We will close out the rest of the article with the tables and charts we provide for readers to help them track the sector for both common shares and preferred shares.
We’re including a quick table for the common shares that will be shown in our tables:
Residential Agency mREITs: (AGNC), (NLY), (DX), (TWO), (ORC), (ARR), (CHMI), (IVR)
Residential Hybrid mREITs: (RC), (EFC), (CIM), (NYMT), (MFA), (MITT)
Residential Originator and Servicer mREITs: (PMT), (RITM)
Commercial mREITs: (BXMT), (FBRT), (ACRE), (GPMT)
BDCs: (MAIN), (CSWC), (ARCC), (BXSL), (GBDC), (TSLX), (OBDC), (OCSL), (TCPC), (SLRC), (PFLT), (GAIN), (MFIC), (TPVG), (FSK)
All of those shares are included in the charts below. You’ll find comparisons based on price-to-book value, dividend yields, and earnings yield.
There is no earnings yield shown for NYMT or PMT because they don't report a comparable core earnings metric. IVR reports a metric, but the accounting resulted in such a laughably absurd value for “Earnings” that I stripped it out of the images.
Note: A company may have a price to BV ratio of 0.00 in the chart if they didn’t report the book value yet or if the price failed to import. If it was the price, you’ll see the dividend yield and earnings yield are also blank.
Our goal is to maximize total returns. We achieve those most effectively by including “trading” strategies. We regularly trade positions in the mortgage REIT common shares and BDCs because:
We also allocate to preferred shares and equity REITs. We encourage buy-and-hold investors to consider using more preferred shares and equity REITs.
Join The REIT Forum by Colorado Wealth Management Fund, trusted by over 60,000 investors for expert analysis on REITs, BDCs, and preferred shares.
Disclosure: Long RITM-D (RIT-D), DX-C, EFC-A, EFC-B, RITM-B (RIT-B), MFAN, RCB, RITM, SLRC, GPMT, RC, GBDC.