Regardless of what the Fed does in September, the market’s recent volatility will keep a lid on bond yields moving much higher than where they currently trade, forecasts income expert Bryan Perry, editor of Cash Machine.
Any rate increase only will cause a further rally in the dollar, which puts more downside pressure on profits from multinational companies in the form of foreign exchange and exports in general.
I think if the Fed does raise rates, it’s an irresponsible move. It is just not warranted at this time considering that US Treasury yields remain some of the highest among developed nations.
Taking this view that interest-rate concerns are overblown and the health of the domestic housing market has no exposure to the swings in the dollar, I am looking at two highly liquid institutional favorites.
The stocks—American Capital Agency (AGNC) and Annaly Capital (NLY)—have been showing signs of fresh investor bullish sentiment and are timely buys.
They are the two largest mortgage real estate investment trusts (mREITs) traded, both with current dividend yields in excess of 12%. Annaly Capital pays its dividends quarterly, while American Capital pays monthly.
Both of these agency mortgage REITs currently have low levels of leverage and trade at a steep discount to book value, currently 0.80 Price/Book.
Active stock buyback plans accompanied by insider buying present a very attractive investment proposition for these two mREITs.
A small bump in the long end of the yield curve tied to persistently low yields on the short end of the curve provides a wider spread by which these REITs manufacture their double-digit yields.
Technically, the two stocks in the midst of an upside reversal on high volume. NLY and AGNC have put in what chartists call a double bottom, higher low formation, typically associated with a bottoming process.
Both pay dividends that are treated as ordinary income for tax purposes. Buy AGNC and NLY at current levels and lock in a 12% or better yield on each.
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