MReits opinions?

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garyt

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I own several mReits and wonder if any of you also invested in them. I own ARI, NYMT, NRZ, ORC and CYS off the top of my head. Dv yield on these rge from 10% -18%.
 
I was hoping you would get some feedback, Gary, as I wanting to see some people smoked out of the "conservative investing woodpile" as most here reside in that area. It has taken me 6 months to get some people believing that 6% investment grade utility preferred stock issues that have paid for 50 years are safe. So I imagined that there would not be a flood of responses to Mreits.
You didn't mention, but do you really know what these things do? The leverage used? The movement of interest rates and its effect on the assets? The fund management mechanism, be it internal or external?
I spent several hours studying them a few months ago, and determined their best service for me would be a funding mechanism to permanently separate me from my money. I think some of these are so complicated even the people running them do not know for sure, except the fact they are clipping their management fee off the top every month.
A well informed but very aggressive income investor on another forum buys them, but only the preferred stocks. Even he has recently said he would not touch common shares of Mreits.
I wish you well, it definitely is high risk high reward as those dividends are not guaranteed. I wonder if some isnt just "return on capital"?


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I got burned by investing in a BDC.... yes, it had great dividends... but then the price started to go down... I did not know why, so hung on... and it kept going down... I am sure there are some bad loans that will eventually come out, but I sold it a year ago... I guess I will check some time, but I do think I lost overall...


I just took a quick look at your first... ARI...

Earnings per share.. $1.54, dividends... $1.84... I would be there is some non cash items that make up the difference, but that just means it is liquidating over time... so unless they keep issuing shares I do not see how they get money to invest....

I do see they have a preff.... and that divi probably has to be paid before common... wonder what the yield is on that...

OK, looked it up... 8.68 yield but not rated... but seems safe as they cover the common pretty well... and it is cumulative, so there is that...

Ticker ARI.PA....
 
They can be confusing. I tend to understand how they work,but only when I'm actually reading about them. But I couldn't explain it now. but as someone else stated, even the experts have a hard time explaining it. I don't have a lot invested in them. I don't care about price appreciation if they keep paying the dividend.
 
garyt said:
They can be confusing. I tend to understand how they work,but only when I'm actually reading about them. But I couldn't explain it now. but as someone else stated, even the experts have a hard time explaining it. I don't have a lot invested in them. I don't care about price appreciation if they keep paying the dividend.
Click to expand...


Yes, for some they can be pretty confusing.... I kinda understand them as I was a trustee for ABS securities for a few years... I actually had to review paper that they were trying to put into the trust and make sure that it met the rules stated in the trust...

A REIT is similar enough to an ABS... so the big question is their underwriting criteria... and do they follow it or not... just like any lending, being fast and loose with credit can get you in trouble...


As Mulligan said, it might be better to invest in the preferred shares... sure, less yield, but you are higher up in the food chain.... and as long as they make a profit they would probably pay the divis....

Now, if the whole pool went to pot, then nothing is safe...
 
Texas Proud said:
Yes, for some they can be pretty confusing.... I kinda understand them as I was a trustee for ABS securities for a few years... I actually had to review paper that they were trying to put into the trust and make sure that it met the rules stated in the trust...

A REIT is similar enough to an ABS... so the big question is their underwriting criteria... and do they follow it or not... just like any lending, being fast and loose with credit can get you in trouble...


As Mulligan said, it might be better to invest in the preferred shares... sure, less yield, but you are higher up in the food chain.... and as long as they make a profit they would probably pay the divis....

Now, if the whole pool went to pot, then nothing is safe...
Click to expand...



This is just me... But I never invest in anything I cant fake enough to appear knowledgable on. When something gets too complicated, I start smelling the rats that may or may not be there... Funny accounting, externally managed which means they just "steal their money" right off the top and sometimes get paid more by doing dumber or riskier things, dividends being passed out as "return on capital". Heck I can do that with my own house every month with a home equity loan and call it dividend. And that will work too, until it doesn't anymore... I refuse to believe anything is "fundamentally safe" with yields over 8%... The market is not in business of excessively free lunches and 12% screams caution. Just my opinion. Traders and steel ball investors, or "whistlers through the graveyard" may well make a killing on them though.
 
Well, there is always StonMor if you need a graveyard to whistle in: STON
 
Brat said:
Well, there is always StonMor if you need a graveyard to whistle in: STON
Click to expand...



And they might accommodate with an investor burial site also. Not an Mreit, but they fit the similar quality of no profitability, but love to pass out those 10% dividends despite 4 consecutive years of losing money and 2016 is projected to lose again.
 
garyt said:
I own several mReits and wonder if any of you also invested in them. I own ARI, NYMT, NRZ, ORC and CYS off the top of my head. Dv yield on these rge from 10% -18%.
Click to expand...
Chasing yield! Bad move. AND you're paying higher taxes! :faceplant:
 
If you see a yield of north of 6% best you: Run away whilst holding your wallet.. Something about if it looks to go to be true it usually is...


Sent from my iPad using Early Retirement Forum
 
ETFs_Rule said:
Chasing yield! Bad move. AND you're paying higher taxes! :faceplant:
Click to expand...

I plead guilty to chasing yield. They're in IRA's ,so no higher taxes. I only have 5% of my portfolio in them, about 1% per the 5 stocks. They currently average about 15% . Even if they cut dividends down the road I'll be OK, just so they don't go bankrupt. I don't DRIP the divi's from these, I use the money to buy more conventional dividend names like P&G, JNJ, T, etc.
 
garyt said:
I plead guilty to chasing yield. They're in IRA's ,so no higher taxes. I only have 5% of my portfolio in them, about 1% per the 5 stocks. They currently average about 15% . Even if they cut dividends down the road I'll be OK, just so they don't go bankrupt. I don't DRIP the divi's from these, I use the money to buy more conventional dividend names like P&G, JNJ, T, etc.
Click to expand...



Well at 1% per, and 5% total as long as every last dollar you need does not have to be accounted for, I see no problem with a few wild bets as I have a few myself.... But...if you are doing this solely for yield chase only, maybe you should consider what Texas said and flip out of the commons into the preferreds of the same issues you own. A safer play
On a risk play.
 
So I am curious Mreits are mortgage reits and invest in mortgages correct? So if I'm not mistaken mortgages are under 5% so exactly where does the difference come from? further how do you know the dividend is nothing but a return of your capital?


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rayinpenn said:
So I am curious Mreits are mortgage reits and invest in mortgages correct? So if I'm not mistaken mortgages are under 5% so exactly where does the difference come from? further how do you know the dividend is nothing but a return of your capital?


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Click to expand...



There are a lot of moving parts to these including leverage and God knows what else...But I do know this...They borrow on the short end and loan out on the long end... When Feds raised short end 25 bps, the long end responded by lowering...That action smokes Mreits.. If they raise a few more times in next year and country goes into recession with long end dropping there will be Mreit road kill all over the road.
 
Mulligan said:
There are a lot of moving parts to these including leverage and God knows what else.
Click to expand...

These basic rules have served me well...Would you agree
Rule #1
Never invest in anything where you don't understand where the money comes from. Bernie Madoff investors learned the reality of this basic premise..


Rule #2
Avoid long term relationships with high maintenance women




Sent from my iPad using Early Retirement Forum
 
rayinpenn said:
These basic rules have served me well...Would you agree
Rule #1
Never invest in anything where you don't understand where the money comes from. Bernie Madoff investors learned the reality of this basic premise..


Rule #2
Avoid long term relationships with high maintenance women




Sent from my iPad using Early Retirement Forum
Click to expand...



Yep.... I want to be able to know at least why I lost my money, and that isnt possible with Mreits for me anyways.
 
The higher the yield the greater the risk of loss of principal and inability to continue to pay the yield.
 
The basic concept of the mReit, borrowing at a low rate and lending at a higher rate seems almost foolproof. On that basis I have invested in several over the years. And always lost money. That proves nothing, but I did decide to stop doing that.


Sent from my iPad using Early Retirement Forum
 
I have invested in MReits in the past. I've discovered you can make a small fortune in them; provided you start with a large fortune.
 
Texas Proud said:
I got burned by investing in a BDC.... yes, it had great dividends... but then the price started to go down... I did not know why, so hung on... and it kept going down... I am sure there are some bad loans that will eventually come out, but I sold it a year ago... I guess I will check some time, but I do think I lost overall...


I just took a quick look at your first... ARI...

Earnings per share.. $1.54, dividends... $1.84... I would be there is some non cash items that make up the difference, but that just means it is liquidating over time... so unless they keep issuing shares I do not see how they get money to invest....

I do see they have a preff.... and that divi probably has to be paid before common... wonder what the yield is on that...

OK, looked it up... 8.68 yield but not rated... but seems safe as they cover the common pretty well... and it is cumulative, so there is that...

Ticker ARI.PA....
Click to expand...

Dividends Come Out of Cash Flow, Not Earnings
 
garyt said:
Dividends Come Out of Cash Flow, Not Earnings
Click to expand...


Amateur wanna be accountants like me can get in a lot of trouble when thinking they know something about "the books" when in reality I dont. Myself, I still want it to come back to profitability. I definitely do not want "return of capital" dividends. These things are complicated and way over my head. A company I am invested in per their own annual statement use these requirements in determining common dividend... "Pay out ratio of earnings", "projected cash flow", "future cash flow requirement", and "projected earnings". So clearly there is a meshing of the two, not just one. However with that being said I stick mostly with monopoly utility company preferred stock that have 30-50 times after tax profit dividend coverage and just clip my 6% and move on. I do not really need to understand the intricacies of financial accounting as I know they will pay, and pay every time.
That doesn't mean anything paying higher isnt a good investment, its just a concession I am not smart enough to really make an informed decision.
 
garyt said:
Dividends Come Out of Cash Flow, Not Earnings
Click to expand...


The only way you can get cash flow without earnings is to have a lot of assets that are depreciating... IOW an expense without current cash needs...

Which is why I said they had to be liquidating over time...

If you want a company to continue to grow you need to invest in money making assets... or at least replace the ones that you have...


Now, if you do not have assets to depreciate, then you have to have more cash coming in to pay those dividends... which sounds like a ponzi to me...
 
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