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AG Mortgage Investment Trust Inc: Can You Count on This 11.8% Yield? Income Investors 2019-04-22 07:04:08 AG Mortgage Investment Trust Inc MITT stock NYSE MITT AG Mortgage stock AG Mortgage Investment Trust AG Mortgage Investment Trust Inc (NYSE:MITT) stock offers a staggering annual yield of 11.8%. But is the dividend safe? Here's the story. AG Mortgage Investment Trust Stock

AG Mortgage Investment Trust Inc: Can You Count on This 11.8% Yield?

1 High-Yield Stock to Think About

This company doesn’t make headlines very often, but it offers one of the biggest yields in today’s market.

I’m talking about AG Mortgage Investment Trust Inc (NYSE:MITT), a real estate investment trust (REIT) headquartered in New York City.

As the name suggests, the company focuses on the mortgage side of the real estate business. Through its investments in mortgage loans, MITT can collect a steady stream of interest and principal payments. And then, it passes some of these payments to shareholders through dividends.

In other words, investors of this mortgage REIT are essentially making money from other people’s mortgage payments.

Sounds like a good deal, right?

And it gets even better. AG Mortgage Investment Trust Inc has a quarterly dividend rate of $0.50 per share and a stock price of $16.94 per share at the time of writing. That translates to an annual yield of 11.8%.

To put it in perspective, the average S&P 500 company pays just 1.9% at the moment. (Source: “S&P 500 Dividend Yield,”, last accessed April 16, 2019.)

That is to say, an investor who purchases MITT stock today would earn a yield more than six times that of the benchmark’s average.

Inevitably, a yield as high as this would make risk-averse investors wonder, “Is the dividend safe?”

To find out, let’s take a look at the company’s business.

AG Mortgage Investment Trust Inc

As I said, MITT invests in mortgages.

To be more specific, the company has five types of investments: agency residential mortgage-backed securities (agency RMBS), residential investments, commercial investments, asset-backed securities (ABS), and single-family rental properties. (Source: “AG Mortgage Investment Trust, Inc. Q4 2018 Earnings Presentation,” AG Mortgage Investment Trust Inc, February 27, 2019.)

That’s right, the company also owns physical properties, which makes it a hybrid mortgage REIT.

Still, by the fourth quarter of 2018, single-family rental properties represented just 3.9% of MITT’s portfolio by net carrying value. Therefore, the bulk of the company’s portfolio was still made up of mortgage assets.

In particular, agency RMBS accounted for 56.6% of AG Mortgage’s portfolio. For those not in the know, agency RMBS are created by three quasi-government agencies: Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Corp (Freddie Mac), and Government National Mortgage Association (Ginnie Mae). The principal and interest payments of an agency RMBS are guaranteed by these three quasi-government agencies.

With more than half of the portfolio invested in agency RMBS, the company has done a solid job at managing the risk of its investments.

The big question now, of course, is whether these investments can generate enough income to support AG Mortgage stock’s generous dividend policy.

Well, according to the most recent earnings report, the company generated core earnings of $0.47 per diluted common share in the fourth quarter of 2018. During the quarter, it declared a dividend of $0.50 per share. (Source: “AG Mortgage Investment Trust, Inc. Reports Fourth Quarter and Full Year 2018 Results,” AG Mortgage Investment Trust Inc, February 26, 2019.)

In other words, AG Mortgage Investment Trust didn’t really make enough profit to cover its dividend for the quarter.

But don’t bail on the company just yet.

In full-year 2018, AG Mortgage pocketed core earnings of $2.08 per diluted common share. Its declared dividends, on the other hand, totaled $1.975 per share. So the company actually earned more than enough money to cover its payout for the year.

The Bottom Line on AG Mortgage Investment Trust Inc

As you would expect, a stock with a double-digit yield is probably not going to be perfect. In particular, the company’s book value has declined quite a bit in its latest reporting quarter.

During the earnings conference call, AG Mortgage’s Chief Executive Officer David Roberts said the following:

In the fourth quarter, market conditions were volatile and agency RMBS spreads widened as interest rates fell sharply while credit spreads widened in sympathy with the broader markets. As a result, our book value declined 10.2% in the prior quarter. The fourth quarter decline in book value constituted most of the decline for the full year 2018 book value of 12.3%.

(Source: “AG Mortgage Investment Trust, Inc. (MITT) CEO David Roberts on Q4 2018 Results – Earnings Call Transcript,” Seeking Alpha, February 27, 2019.)

Still, it should be noted that MITT stock trades at $16.94 per share at the time of writing, which is lower than its last-reported book value of $17.21 per share. Moreover, Roberts noted that through January 2019, “there has been a modest recovery in the market for risk assets and the agency basis and we estimate that book value increased approximately 2% through January 31, 2019.” (Source: Ibid.)

Bottom Line: AG Mortgage Investment Trust Inc is an inexpensive stock with a solid business model in place. If the company can improve its dividend coverage—so it would leave a wider margin of safety—MITT stock’s 11.8% yield would be worth a look.

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