This might appear surprising, but I am suspicious of high dividend yields…

Being a professional dividend stock analyst, I regularly check the stock market for high-yield dividend stocks. My searches generally bring plenty of results. Presently, for example, 95 stocks are yielding over 10%.

These dividend yields look awesome until I look at the businesses behind them. But they are generally waste. The high returns means the stock value has in recent times dropped or the dividend payment is about to drop… or both.

In other words, I normally think about high dividend yields the similar way I’d consider a colorful snake: I steer clear.

That said, you can find for all time exceptions to the rule. Through the years, I have been capable of find pockets of rock-solid high-yield stocks dumped in trash. In recent times, I discovered one of those “pockets” in mortgage industry…

One can find two different forms of mortgages.
1. Agency Mortgages: The mortgages insured by government.
2. Nonagency Mortgages: These mortgages would not have government support and these are issued by private lenders like banks or mortgage companies.

In past three years, investors who invested their money in nonagency mortgages have lost trillions of bucks. The recession has created it a lot difficult for the property owners to make their monthly mortgage repayments. Non-Payment, delinquencies and foreclosures have increased like anything. The investors who invested their money in these mortgages have lost their fortunes because there is no protection from a government guarantee.

Mortgages have made huge losses for the people who invested them in the last 10 years.  They’re the very last investment preference that you would think buying when you are planning for investment. I’ll agree with you, moreover leave them with the rest of the useless items my screens turn up.

Normally, I would have the same opinion with you. However take a look at this for a while.

TransUnion is the 3rd largest consumer credit reporting agency in United States, that gives credit-related information to potential creditors. Every month, TransUnion measures how many mortgages which 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 the entire mortgages dropped this month for the very first time in last three years, from 6.89% to 6.77%.

One of the basics of being profitable in the stock market is to purchase while things move from bad to less bad. And that’s what happening in the mortgage market right now. A smaller number of people are defaulting on their loans for the first time.

The market is turning around. It’s a good opportunity to buy nonagency mortgages, even if they stink.

Mortgage Real Estate Investment Trusts (REIT) are stock market instruments that focus in investment in mortgages. Nonagency mortgages are still transacting, on average, approximately 70 cents on the dollar. The few mortgage REITs that make investments in nonagency mortgages are trading like junk bonds as well as paying 12%-18% dividends.

As lesser quantity property owners default on their mortgages, mortgage REITs should be capable to make more earnings and pay bigger dividends. As other investors realize mortgage REIT dividends are sustainable, they’ll push up the stock prices, giving you capital gains, too.

In short, the mortgage market is moving from “bad” to “less bad” and it’s giving us a unusual chance to receive a secure, high profits stream in the mortgage REIT industry.

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