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This might seem odd, but I'm suspicious of high dividend yields…

Being a qualified dividend stock analyst, I regularly check the stock market for high-yield dividend stocks. My searches generally fetch hundreds of results. Currently, for instance, 95 stocks are yielding above 10%.

These dividend yields seem amazing until I take a look at the businesses behind them. However they are mostly rubbish. The high yield means the stock value has recently dropped or the dividend payment is just about to drop… or both.

In other words, I normally consider high dividend yields the same way I'd consider a colourful snake: I steer clear.

That said, there are always exceptions to the rule. Throughout the years, I've been in a position to discover pockets of rock-solid high-yield stocks dumped in trash. In recent times, I discovered one of those "pockets" in the mortgage industry…

You will find two different types of mortgages.
1. Agency Mortgages: The mortgages insured by the government.
2. Nonagency Mortgages: These mortgages do not have government backing and they are issued by private lenders like banks or mortgage companies.

In past 3 years, investors who invested their money in nonagency mortgages have lost trillions of dollars. The recession has made it much hard for the property owners to make their monthly mortgage payments. Non-Payment, delinquencies as well as foreclosures have increased like anything. The investors who invested their money in these mortgages have lost their fortunes because there isn't any security from a government guarantee.

Mortgages have created huge losses for the investors who invested them in the last 10 years.  They're the very last investment option that you would think buying in case you are planning for investment. I'll a similar opinion} with you, furthermore leave them with the rest of the useless items my screens turn up.

Generally, I'd agree with you. But take a look at this for a while.

TransUnion is the 3rd largest consumer credit reporting bureau in United States, that offers credit-related information to potential creditors. Every month, TransUnion measures how many mortgages that have gone 60 days or more without the borrower making a repayment.

In respect to the most recent research report from TransUnion, the 60-day failure rate for all mortgages dropped this month for the 1st time in last three years, from 6.89% to 6.77%.

One of the fundamentals of being profitable in the stock market is to purchase while things move from bad to less bad. And that is what happening in the mortgage market right now. A lesser amount of individuals are defaulting on their loans for the 1st time.

The market is popping around. It's a excellent opportunity to purchase nonagency mortgages, even if they stink.

Mortgage Real Estate Investment Trusts (REIT) are stock market instruments that focus in investing in mortgages. Nonagency mortgages are still trading, on average, approximately seventy cents on the dollar. The few mortgage REITs that make investments in nonagency mortgages are transacting like junk bonds and paying 12%-18% dividends.

As lesser quantity property owners failure to pay on their mortgages, mortgage REITs should manage to make more income and pay bigger dividends. As other investors understand mortgage REIT dividends are sustainable, they will push up the stock prices, providing you with capital gains, too.

In short, the mortgage market is moving from "bad" to "less bad" and it's giving us a unusual opportunity to get a secure, high profits stream from the mortgage REIT industry.

 

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Tags: best dividend stocks, dividend stocks, dividends, high dividend yields