TWO - Two Harbors Investors Should Be Careful With the Dividend
This year has been miserable for the real estate industry, especially for anyone involved in the mortgage market. Mortgage originators have struggled with declining volumes, while the mortgage real estate investment trusts (REIT) have dealt with underperformance of their most significant asset -- mortgage-backed securities (MBS). Many of these mortgage REITs have eye-popping dividend yields , but investors should be careful assuming these yields will hold up. Two Harbors (NYSE: TWO) has a high-teens dividend yield, but should investors bank on it continuing?
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Mortgage REITs are different from the typical REIT, which generally follows a landlord/tenant model. These companies develop properties such as office buildings, apartments, or shopping malls and then lease them to tenants. Mortgage REITs don't buy individual properties; they invest in real estate debt. They buy mortgage-backed securities (MBS) and collect interest. In this way, they are more similar to a bank or a hedge fund.
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Two Harbors Investors Should Be Careful With the Dividend