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| Written by Greg Matthews |
| Monday, 07 June 2010 10:32 |
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This might seem surprising, but I am suspicious of high dividend yields...
This might seem surprising, but I am suspicious of high dividend yields... Being a expert dividend stock analyst, I regularly examine the stock market for high-yield dividend stocks. My searches generally bring hundreds of results. At this time, for example, 95 stocks are yielding more than 10%. These dividend yields look remarkable until I take a look at the firms behind them. But they are mostly rubbish. The high yield 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 same way I would consider a colorful snake: I steer clear. That said, there are always exceptions to this rule. Throughout the years, I have been capable of find pockets of rock-solid high-yield stocks dumped in the trash. In recent times, I discovered one of these "pockets" in the mortgage industry... There are two different forms of mortgages. 1. Agency Mortgages: The mortgages insured by the government. 2. Nonagency Mortgages: These mortgages don't have government backing 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 made it much hard for the property owners to make their monthly mortgage repayments. Non-Payment, delinquencies as well as foreclosures have increased like anything. The investors who invested their money in these mortgages have lost their fortunes since there is no protection from a government guarantee. Mortgages have created huge losses for the investors who touched them in the last 10 years. They're the last investment preference that you'd consider buying if you're planning for investment. I will agree with you, also leave them with the rest of the useless items my screens turn up. In general, I'd agree with you. However take a look at this for a while. TransUnion is the third largest consumer credit reporting agency in United States, that provides 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 payment. In accordance to the most recent research report from TransUnion, the 60-day failure rate for the entire mortgages dropped this month for the 1st time in last 3 years, from 6.89% to 6.77%. Among the ground rules of earning profits in the stock market is to buy while things move from bad to less bad. Moreover that is what happening in the mortgage market right now. A smaller amount of individuals are defaulting on their loans for the 1st time. The market is turning around. It's a good chance to buy nonagency mortgages, even though they stink. Mortgage Real Estate Investment Trusts (REIT) are stock market instruments that focus in investing in mortgages. Nonagency mortgages are still transacting, on average, around 70 cents on the dollar. The few mortgage REITs that make investments in nonagency mortgages are transacting like junk bonds and paying out 12%-18% dividends. As smaller quantity home owners failure to pay on their mortgages, mortgage REITs should be capable to make more returns and pay larger dividends. As other investors realize mortgage REIT dividends are sustainable, they're going to push up the stock prices, giving you capital gains, too. Briefly, the mortgage market is moving from "bad" to "less bad" and it's giving us a rare opportunity to receive a safe, high income stream in the mortgage REIT industry. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. Top Income Stocks specializes in finding the highest yielding, safe dividend paying stocks in world today. Every month you'll receive our TOP 10 picks showing you the best dividend-paying income stocks. Click here to signup today and can get Top Incomes Stocks 30-day trial membership for just $4.97. |