The 12.1% Yield Backed By Uncle Sam?
~ by Robert Baillieul, B.Comm.
Today’s chart highlights my favorite place to find safe seven percent, nine percent, and even 12% yields: mortgage real estate investment trusts (REITs).
Mortgage REITs work like a virtual bank. They borrow money from savers and lend out funds to homeowners. Because “Uncle Sam” backs many of these loans, investors prize these businesses for their safe income.
Case in point: Western Asset Mortgage Capital Corp (NYSE: WMC). This lender invests in residential mortgages with guarantees from federal agencies. And with a payout topping 12%, the stock is worth a second look.
Western is a sleepy business, for starters. The mortgage represents the last bill that people skip during a financial crisis. In the unlikely event of a default, the company stands first in line to get paid.
Furthermore, most of these loans have the backing of Uncle Sam. To encourage lending, federal agencies like Fannie Mae and Freddie Mac have ensured residential mortgages. This meant that even during the height of the 2008 financial crisis, insured mortgage-holders still got paid.
Western is also lucrative, with homeowners having to pay all of the closing costs and insurance premiums. And because Western has no physical branches, the trust has little in the way of overhead.
As a result, this firm gushes profits. Last year, Western generated $0.08 in return on every dollar of equity invested into the business. That number won’t get the Bitcoin bulls out of bed, but it’s impressive when you consider the safety of these loans.
For owners, this translates into a tidy income stream. Western just sits back and goes about handing out their payments each month. They can predict to almost the dollar how much they’ll get paid for years to come.
Most of this income gets passed on to owners. Because of how management structured this business, they must pay out all of their profits to investors. Today, Western sends out a quarterly distribution of $0.31 per unit, which comes out to an annual yield of 12.1%.
Of course, no one is calling this stock a sure thing. Western’s profits depend on the difference between short- and long-term interest rates, called the “spread.” A bump in interest rates would clip profits. And because executives pay out all of the income in distributions, they don’t have a lot of wiggle room if business sours.
That said, management has does a great job hedging these risks. This business continues to generate ample cash flow each and every month. For investors looking to lock in a big yield, WMC stock is one to investigate further.
(The above article has been reprinted with the permission of Income Investors.)
Government Indirectly Funding the Retirement of Thousands of Americans?
Most people have no idea Uncle Sam indirectly sponsors thousands of retirees... by paying out millions of dollars every year into what we call an "8.4% Cash Rebate Fund."
Like Joanna, whose Cash Rebate Fund brings her the equivalent of just over $2,300 every month. Or Sam, who collects $5,138 each month.
CNN Money says they "have long been a go-to investment for retirees looking for reliable income."
U.S. News added that government-endorsed funds like this "are designed to generate income for investors."
Americans are turning to the 8.4% Cash Rebate Fund to juice up their retirement, and so can you!
$122 million in cash-rebate payouts is earmarked to be distributed to Americans over the next 12 months.
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To start collecting this cash rebate income, I urge you to watch our FREE video on when you Opt-in for our FREE income e-letter along with our special offers from Income Investors.
What Is Income Investors?
Income Investors is dedicated to delivering timely, trusted and actionable financial news and information to dividend investors. Our mission is to help readers earn higher investment yields and better returns from their portfolios.
Our philosophy is straightforward:
- We believe in simple.If you want to own hot tech stocks, Income Investors isn’t for you. But if you prefer commonsense investing, then you’ll like our approach just fine. Investors adore sexy startups and biotech plays. But over the long term, the best stocks tend to be simple businesses that produce reliable profits that they pay out to shareholders.
- We believe in dividends.For ordinary investors, dividends may be the best way to build wealth. Sure, we all like the extra money. But in addition to regular income, study after study has shown dividend stocks actually beat the market over the long haul. After all, what could be a better sign of a solid business than writing a check to shareholders?
- We believe in the future.Over the past century, American incomes have grown sevenfold. Think about everything that has happened during that time: the Great Depression…two world wars…asset bubbles…stock market crashes…and the list goes on. Yet through it all, our standard of living has marched higher. For 240 years, it has been a mistake to be betting against America. Now is not the time to start.
John Whitefoot is an analyst at Lombardi Publishing Corporation specializing in low-priced investment opportunities and is editor of Lombardi's popular income newsletters, Automated Income and Passive Monthly Income.
Primarily a fundamental analyst, John has been a financial writer since the late 1990s and has written on everything from income stocks to blue-chip stocks to the broader issues that affect the stock market. John has profiled more than 1,000 low-priced and conservative stocks.
Jing Pan is a research analyst and editor at Income Investors. His interests are in the fields of macroeconomics, technology, and currency. His major projects have included analyzing the relationship between the interpersonal trust index and economic performance, algorithmic trading in the foreign exchange markets, and the long-term impact of welfare programs.
Jing holds a Master’s Degree in Economics and a Bachelor of Science Degree, both from the University of Toronto.
Jing was co-founder of E-Learning’s Online Tutoring Service in Beijing, China; a project analyst at BMO Capital Markets; and a graduate research assistant at the University of Toronto.
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