IVR - This Reverse Stock-Splitter Is Yielding 27% -- And Its Shares Are Rising
Markets were higher early in the day on Tuesday, but they gave up those gains quickly. Ongoing concerns about the economic situation continued to weigh on investor sentiment. As of 11:45 a.m. ET, the Dow Jones Industrial Average (DJINDICES: ^DJI) was down 157 points to 31,282. The S&P 500 (SNPINDEX: ^GSPC) fell 33 points to 3,867, while the Nasdaq Composite (NASDAQINDEX: ^IXIC) gave up 179 points to 11,345.
Investors see stock splits as a positive, but reverse stock splits are often seen as indicating the opposite. Companies that resort to reverse stock splits in order to keep their share prices above regulatory minimums are often in considerable trouble. However, in the case of Invesco Mortgage Capital (NYSE: IVR) , investors on Tuesday seemed to be pleased at how well the company's fundamentals have managed to hold up even after needing to do a reverse split, boosting share prices up nearly 8%. They're also quite happy at the income they're getting from its current dividend yield of 27%.
Invesco Mortgage capital is a real estate investment trust (REIT) that specializes in investing in mortgage-backed securities. In particular, Invesco has traditionally followed a leveraged approach, which involves borrowing considerable amounts of money and then reinvesting that money back into the mortgage-backed bond market. When Invesco can borrow more cheaply than the yields it earns on those bonds, the differences come back to it in profit. As a REIT, Invesco then pays out the bulk of its income to shareholders in order to reap the tax advantages that this type of investment offers. For the past six quarters, that has resulted in a stable dividend payment that works out to $0.90 per current share each quarter.
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This Reverse Stock-Splitter Is Yielding 27% -- And Its Shares Are Rising