Back to top

Analyst Blog

Zacks Equity Research

Two Harbors Reduces Dividend

TWO RWT

 ZacksTrade Now

This page is temporarily not available.  Please check later as it should be available shortly. If you have any questions, please email customer support at support@zacks.com or call 800-767-3771 ext.  9339.

Two Harbors Investment Corp. (TWO - Snapshot Report), a real estate investment trust (REIT) that primarily invests in residential mortgage-backed securities (RMBS), has recently reduced its quarterly dividend from 40 cents to 36 cents per share for the third quarter of 2012. The dividend is payable on October 22, 2012, to shareholders of record on September 24.

The current dividend equates to a 10% year-over-year decrease in the dividend payout and is based on the evaluation of the present market scenario. 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.

Based on the closing price of $11.90, the current dividend yield is fairly impressive at approximately 12.1%. A steady dividend payout facilitates the long-term strategy of Two Harbors to provide attractive risk-adjusted returns to its stockholders. The company has also historically promulgated a dividend reinvestment and direct stock purchase plan through which stockholders may purchase additional shares of the company by reinvesting some or all of the cash dividends received on the common shares.

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 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. The company is externally managed and advised by PRCM Advisers LLC, a wholly owned subsidiary of Pine River Capital Management L.P.

Agency RMBS are those where principal and interest payments are guaranteed by the U.S. government or government-owned entities, such as Fannie Mae, Freddie Mac and Ginnie Mae. On the other hand, non-Agency RMBS are neither issued nor guaranteed by the government-affiliated agencies.

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 risks 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.

We presently have a Neutral recommendation on Two Harbors, which currently has a Zacks #3 Rank that indicates a short-term Hold rating. However, we have an Outperform recommendation and a Zacks #1 Rank (short-term Strong Buy rating) for Redwood Trust Inc. (RWT - Snapshot Report), one of the competitors of Two Harbors.

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

Learn more

Start for as little as $4.50 per trade.

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
DIXIE GRP IN DXYN 15.84 +7.90%
BOFI HLDG IN BOFI 85.30 +4.97%
RAMBUS INC RMBS 12.31 +4.41%
VIPSHOP HOLD VIPS 148.73 +4.35%
NETFLIX INC NFLX 345.74 +4.32%