Here's How Two Harbors Can Afford Its 13% Dividend Yield
Over the past 18 months, life has been tough in the mortgage space. Rising interest rates have caused mortgage-backed securities to fall in price, and they have underperformed Treasuries. This has meant falling book values and dividends for the mortgage real estate investment trusts (REITs). Two Harbors (NYSE: TWO) recently cut its dividend, though it still has an attractive yield. Is the dividend sustainable?
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Mortgage REITs are different than the typical REIT. Most REITs invest in real property and then rent out individual units, which is the easy-to-understand landlord/tenant business model. Mortgage REITs don't invest in physical property; they buy property debt -- in other words, mortgages. Instead of collecting rent, they collect interest. In many ways, they look more like banks than landlords.
Source Fool.com
