Over the last year I have owned a small does of mREIT fixed to floating rate preferreds and they have performed well while tossing off yields in the 10% area–just the kind of yield I need to balance my CDs and money market funds.
Currently I hold the Rithm Capital 7.125% issue fixed to floating (RITH-B) which is floating with a current yield in the 10.4-10.6% area–quite tasty. Share prices are up 1/2% since I bought 8 months or so ago–which is not highly meaningful as I just want it hanging in the $25 area (25.23 now) while I collect the big dividend. If by chance it goes to the high 25’s or 26 I would sell it.
I own the Chimera Investment 8% fixed to floating issue (CIM-D) which is now in the 10% current yield area. Unfortunately the share price is off 7% or so from my purchase price. I am less comfortable with this holding as they have a lot of non-agency paper. I may get rid of this soon.
I also own some of the PennyMac 8.50% senior notes (PMTU).
Today I have an order in for a AGNC fixed to floating issue but have been unable to execute at MY price–the ask keeps getting walked up and I moved by bid a few pennies, but there is always another day. AGNC is a $80 billion mREIT that is focused on agency (fannie, freddie and ginnie) mortgages–which I prefer. They have 4 issues floating and it is somewhat of a coin toss as which is best.
I’ll report back when I can get an execution.
Something to consider on mreit’s. Compare charts and look at the price drops when the market panics.
This article was August of a year ago and noted price drops at the time.
https://seekingalpha.com/article/4711993-redwood-trust-recently-issued-two-notes-maturing-in-2029
The time to buy is in a market panic and it gives you the opportunity to flip and make almost as much profits as if you held for several years when and if they recover.
Hopefully comparing charts and figure out a good time to jump in to a complicated investment is 1 of many things that is done.
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There are two big traps investors keep falling into:
The “Market Timer” Trap People think they’re genius bargain hunters, swooping in to “buy the dip.” But when the market keeps dipping, these same “smart” buyers panic and sell at true rock bottom. Even better – they’ll jump back in later, convinced they can win it all back. Classic emotional investing at its finest.
The “Quick Flip” Trap Investors pile into complicated, high-risk investments hoping for a quick profit. They don’t really understand what they’re buying, but hey, everyone else is making money, right? Then the market turns south, and suddenly they’re scrambling for the exit, selling at any price just to escape.
Stick to three basic rules:
– If you can’t explain it to a 12-year-old, don’t buy it
– If you’re not willing to hold it for years, pass on it
– If it’s keeping you up at night or glued to your phone checking prices, it’s not for you
Most people know these rules. But it’s like telling someone to eat their vegetables. Everyone nods along, then grabs a candy bar anyway. One lucky win, and suddenly all those sensible rules go right out the window.
If I followed your basic rules I’d have all my money in CDs and I’d have half as much. But Yes I made some of those mistakes in other areas before I found what I was good at. That’s the key.
Right Martin , – you’re clearly a different breed here.
These risks are like you already acknowledging the disclaimers. Given your full-time market immersion and years of experience, you’ve already got your finger on the pulse of the market and can react quickly. You could also give yourself a little more credit if you can read a 10k, or profit and loss statement, etc to have a reason to invest in some stocks and not just cd’s.
Most “safety rules” are written for weekend warriors, not seasoned traders like yourself who can read market flows and pivot positions on instinct. You are operating in a completely different league from the typical retail investor chasing headlines.
Mr. C well said. At my age I’m looking for long term investments. A little spice in the diet is fine but too much gives me indigestion and keeps me awake at night.
Martin, a good balance for me is keeping what I have and the income. I have spread out the holdings in my wife’s account so I don’t need to worry. Other accounts I may do a little trading in to increase the money.
Our taxable accounts are mostly longer term holds. Short term trades in IRA/Roth IRAs. After years of growing them while spending from taxable over half is now in IRAs.
Trading is not just investment it’s also a hobby. So I don’t consider it indigestion.
McReits !!!
They have been the most rewarding pfds out there past 5+ years. Who would have thought? I own them for my friends but oye vey! Nobody knows how to evaluate their balance sheet/income statements. I’ve had parent companies come in who own their own mcreit….they shrug their shoulders when we ask about them!!
In general if the common has done nothing but go down over 5-10 years we know we are playing w fire. Sideways action is a big win I guess! All we are left with is size. The bigger the better. Below 5 bill market cap is skating on thin ice. NLY is the only issue I’ve sensed some comfort owning. The rest are what I call asbestos glove issues
If you prefer, Home sales have dropped to their lowest level since March of 2009 of course this information is one month old and doesn’t include the recent April market panic.
https://www.msn.com/en-us/money/realestate/home-sales-last-month-dropped-to-their-slowest-march-pace-since-2009/ar-AA1DxvwG
Buyer confidence in their job is a major factor in their decision besides the rate of mortgage they can get.
From just my observation point this past weekend consumer sales seemed to be doing good if judged by the full parking lots and full stores.
We will have to see higher unemployment numbers to tell me that things are slowing down. Of course a home with a mortgage is the largest purchase after a vehicle so maybe people are deciding to spend money on other things.
This is a great discussion on this sector of investing, but I’m going to hold off investing until I know which direction the market is headed. A position in this sector of the market can be difficult to sell out of.
I’ll throw this one out:
There was past talk on this site of RWT and it issuing 3 notes which are higher in the stack
RWTO
RWTN
RWTP
RWT- PA
I dont know Redwood or whoever RWT is! A market cap of 800mm? I’ll bet it use to be over 2-3 billion. I hope it works. I do own some issues in similar size.
Another area we need to have a view on is issue deal size/trading volume. If we buy issues that are smaller than 10mm we are thinning out the trading volume. Below 5mm is pushing it. If some issue is only 1mm or so it’s not going to trade well/often. Probably widening the bid ask.
Its’ more difficult to trade something thats most always showing a 50 cents of more bid ask.
IYP, considering RWT is known for doing jumbo loans and backing large multifamily projects then the 60 Million RWTN isn’t backed by hundreds or thousands of single family mortgages. I would also not be surprised by how much is leveraged. I know they state they hold some of the loans they make, but selling off the loans for new money to invest and rolling over into new loans is possible.
Looking at MFA and their notes they are similar in size to RWT so the same notes of caution could be applied. But they may do different types of loans.
Either way, I bought below par right after RWTN was issued and flipped for a quick profit. Haven’t looked back and quit following.
You have a good point and something to consider if I get back into mortgage REITs.
If you Prefer, Mentioning mkt. cap. I’m slow on the up take a lot of the time, I just re-read Tim’s post and caught he said AGNC has a 80 Billion market cap. I think he meant 8 Billion.
I swapped my CIM-D for 9% baby bond CIMN a few months ago. Slight loss in yield for a higher position in the stack.
I own TWO pfds. Right now I think Two
-a is good. TWO owns a lot of MSRs, if you want to hedge that way.
I like TWO-A and TWO-B. I think the price is relatively high now but I keep them because I trade between them.
Martin G……I agree with you that NLY F & I if called would result in a small gain due to interest payment & not an overall loss……But since payments dates and ex dates are the same…….I believe that the differential of 0.60 of cost basis still indicates a 3 year lag of the higher paying issues……..I also agree a “call” is not imminent on any of the issues…however…….if they issue a new preferred to pay off the floating issues…..F & I would be the 1st to be called…do you think these issues will survive for 3 years? Why wouldn’t they do it to lower their payouts with new issues?
I don’t know what will happen in 3 years my goal is to stay nimble and play whatever does happen. I think the odds of a new issue to replace an existing one is low now but who knows what next year brings. My strategy is to rack up small trading profits while collecting dividends along the way. Different than a buy&hold strategy.
Payment date is not the same as ex-date, all ex-date does is determine who gets paid later.
Sold my old AGNCL- made profit with all of the divs, a few cents loss/sh on price.
Bought AGNCO F-2-F @ 24.84, 9.62% yld on last div.
Watching the higher paying AGNCN-might get some or trade if there is an imbalance. O is less likely to be called than N given original coupon and the F-2-F add-ons.
Also have put some money into BNJ as a sort of MMkt for better interest- seems pretty safe– can’t see them doing a call.
Good move. AGNCL is overrated because of the higher dividend now, it has a lower float rate later which means more to me. AGNCO is my choice but it’s a close call with some of their others. Not my top holding some analysts aren’t bullish but I don’t know who to believe.
My understanding is that AGNCL now has a fixed coupon at 7.75%, and will reset in October 2027 at 5yrT+4.39%. Today, AGNCO has the higher dividend because it is already floating off of 3mSOFR+4.993%+0.26161%. In comparing the future reset rate on AGNCL to the floating rate on AGNCO, you have to consider what the yield curve might look like in October 2027 (assuming AGNCO is not redeemed by then).
Gary, thanks for the mention of BNJ. Interesting BBB note at 7.17% CY as a hold forever. Perpetual, so a long duration especially with low coupon. This is 50-100bp above BBB-rateds except ATH-B at 7.29%.
Why do you consider it a MMkt substitute?
Prospectus says payments are expected to be QDI – does anyone have that reported on their 2024 1099?
I’m considering it as a swap for WFC-L which is BB+ at 6.37%, QDI which his essentially perpetual as well.
Like others, Brookfield is not a favorite, but shenanigans with a note is unlikely IMO. Maybe delisting risk?
Tom
I have a position in BNJ and it’s QDI
Being a rather low coupon of 4/5% and a BB, it seems unlikely to be called and well protected as a note ( subordinated, so not so great) vs their measly common div– can’t see them stopping the common either.
I’m no fan of BN, but this looks stable & if called- a huge cap gain.
It’s a small amt compared to my others- CLIP, SGOV, USFR and JAAA (not as safe as the preceding three, of course.
Also added AGNCP in early Feb- floats for the next pmt.
AGNCP fits real close in that mix with recent close price ($24.60). You give up a few BP on the current yield, but has some upside on the redemption price if it’s called. Middle of the mix in regards to the SOFR adjustment so chance of redemption lower. Recent pop in price compared to other issues may give a chance to get in with closer yield if price lowers.
I own the following MREIT preferreds/baby bonds:
RITM-A
RITM-B
RITM-D
PMT-A
AGNCP
CIMN
ABR-E
ABR-F
GPMT-A
NYMTZ
Gumfighter–obviously I am much more conservative, but so far these have mostly served you well.
good choices gumfighter. I own almost all of those but sometimes different issues from the same people. GPMT causes me some concern.
Welcome to REIT world. I have a boatload of RITM-D for the higher float though the price moved back up recently. RITM-B is a good one, I have RITM-A for the teensy higher yield, may be called but I’ll keep it as long as it trades below stripped par. Dividend capture next Thursday.
I have CIM-B currently 11%, probably own too much it’s somewhat higher risk. Looking for a higher price so I can sell some, or switch some to CIMO for ex-div next week.
Got out of PMT though it still gets good reviews. If I get back it I’ll probably get PMT-A/B gambling on the courts ruling.
Any opinions on BW. PRA. Down to 3.15 per share from 25.00
BW may be dying. High risk of default. BW-A could be a windfall if they ever recover. A lot like buying penny stocks. Do you feel lucky, punk?
martin g – another B Riley doozy.
Another way to think about BW-A: if it survives for about 6 quarters (not years, quarters), you will have earned back your purchase price.
That says something to me.
So, I guess it just depends on how many rounds you think are in the revolver as you play Russian roulette…
Not likely. More likely they suspend dividends sooner, then if they ever can resume payments that’s where you win. But I’ve seen struggling companies get back on their feet somewhat but didn’t resume payments they spent the money elsewhere. Preferred stocks are the redhaired stepchildren.
What do you think of RC/E? Yielding over 10% and trading around $16. I’ve been buying in this range.
Probably above average risk but it’s hard for us laymen to figure these things out. I’m holding a modest amount of RC-E going back several years before it was sold. Not my favorite holding but it’ll do.
Not a fan of Ready Cap Corp “RC” mortgage reit…..Earnings miss after miss…..No P/E ratio because they show no earnings…just a loss…….
Doesn’t appear to be a high quality issue…IMHO…….
Everyone of course needs to do their own due diligence and ascertain their own risk tolerance……..RC beyond my risk tolerance…..& I believe you can get similar yield in much higher quality mreit in the previous fix to floating stated issues of AGNC NLY RITM
Higher Quality NLY/PRG Fix to floating is the only annaly preferred under par…currently 24.66……..less likely to be called with 2 issues paying more……..
For me ,…a no “brainer”…lol….could pop a bit after upcoming earnings….following AGNC footsteps (better than expected but still year over year declines)
Aso own AGNCO RITM B/C/D
and sadly CIM/PRD…the underperformer of my mreit holdings
Eyeman–will take a look at the NLY issue–may need to go that way if I can’t get ‘my’ price on the current order.
Tim,
The master list shows NLY-G current yield as “float”. Is it possible to put the current distribution/yield in?
furcal—I can’t easily do that but this page has close estimates of the current yield
https://innovativeincomeinvestor.com/floating-rate-and-fixed-to-floating-rate-preferred-stocks/
I have some NLY-I (which is substantially the same as NLY-F). I show a present coupon of $2.3875 for NLY-I. At 25.22, the current yield is 9.53% on the stripped price, as compared to the 8.96% yield on stripped price that I show for NLY-G. Although the NLY-I is above par, even if its called tomorrow, I will still make a few cents. Given that there is no risk of a loss on call for NLY-I at 25.22, I like the higher yield.
NLY may still be old reliable in this sector but nit as much if astandout since the founder died and family took over. I prefer NLY-F or even NLY-I. Call doesn’t seem imminent nor would it be a loss if it happens.
NLY I & NLY F will result in a capital loss currently of about 0.20 at todays price while NLY G would result in a capital gain of approximately 0.40……(if called)
Quarterly Payment difference is about 0.05…..therefore break even on the higher paying issues compared to NLY G is 12 Payments or 3 YEARS!
If called less than 3 years …NLY G is the winner
We have different philosophy about calls. 25 days of accumulated dividends plus 30 days notice would result in a small gain if called which seems low probability. If so, then buy something else maybe even G and I would include whatever assumed benefit from that purchase when comparing the odds.