SEVN - Mortgage REITs: High Yield Is Back

• Mortgage REITs - which endured punishing declines of 50-70% during the peak of the pandemic - have rallied back from the brink since mid-2020 to within shouting distance of record highs.
• The pandemic-driven wave of dividend cuts has given way to a frenzy of dividend hikes this year with 25 mREITs increasing their payouts, pushing the average yield to nearly 8%.
• After a sharp recovery, mREIT Book Values trended sideways in early 2021 amid declining rates and yield curve tightening, but third quarter results should be helped by favorable yield-curve movements.
• Mortgage REITs don't deserve their "ugly duckling" status within the REIT sector. Adding mREITs to a balanced equity REIT portfolio is a prudent strategy to hedge interest rate risk while adding immediate income.
• Mortgage REIT earnings season kicks off this week. The three trends we're watching: 1) Dividend Sustainability, 2) Updated Book Values, 3) Commentary on the effects of expired pandemic relief measures.

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