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According to Bedford Report that provides in-depth analysis and business research on equities, Two Harbors Investment Corp. ( TWO - Snapshot Report ) – a real estate investment trust (REIT) that primarily invests in residential mortgage-backed securities (RMBS), is likely to maintain a strong dividend payout in 2011.
The company has recently declared a second quarter 2011 cash dividend of 40 cents per share, which remains unchanged from that of the first quarter.
A steady dividend payout coincides with the long-term strategy of Two Harbors to provide attractive risk-adjusted returns to its stockholders. The company has historically promulgated a dividend reinvestment and direct stock purchase plan through which stockholders could purchase additional shares of the company by reinvesting some or all of the cash dividends received.
Investors looking for high dividend yields are increasingly favoring REITs like Two Harbors. Solid dividend payouts are arguably the biggest enticement for REIT investors as the U.S. law requires REITs to distribute 90% of their annual taxable income in the form of dividends to shareholders.
Two Harbors primarily acquires, owns and manages a portfolio of Agency and non-Agency RMBS and related investments. Agency RMBS are those whose principal and interest payments are guaranteed by the U.S. government or government-owned entities, such as Fannie Mae ( FNMA ) , Freddie Mac ( FMCC ) and Ginnie Mae. On the other hand, non-Agency RMBS are neither issued nor guaranteed by the government-affiliated agencies.
The company’s investment strategy takes a holistic view of the rapidly evolving market and deploys a dynamic capital allocation approach to focus on the relative value of the various sectors within the mortgage market.
However, the residential mortgage market in the U.S. has experienced defaults, credit losses and liquidity concerns in the recent past. These factors have impacted investor perception of the risk associated with real estate related assets, including agency securities and other high-quality RMBS assets.
As a result, values for RMBS assets, including some agency securities and other AAA-rated RMBS assets, have experienced a certain amount of volatility. Increased volatility and deterioration in the broader residential mortgage and RMBS markets may adversely affect the performance of Two Harbors in the future.
The company is externally managed and advised by PRCM Advisers, LLC, a wholly-owned subsidiary of Pine River Capital Management L.P. We presently have a Neutral recommendation on Two Harbors, which currently has a Zacks #3 Rank that indicates a short-term Hold rating.
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