Sticking With What Works

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.
As you know from your current Dividend Pro portfolio, there’s one asset class that has performed better than any other.
 
And that asset class is mortgage real estate investment trusts (REITs).
 
Your positions in both American Capital Agency Corp. (AGNC) and Two Harbors Investment Corp. (TWO) have held up remarkably well over the course of the recent market correction. They are both trading at or near 52-week highs — even as they yield more than 15%.
 
This week’s Dividend Pro recommendation ups your bet on this red-hot asset class through the iShares FTSE NAREIT Mortgage Plus Capped Index Fund (REM).
 
Rather than betting on a single mortgage REIT, REM invests in the 28 real estate investment trusts that make up the FTSE NAREIT All Mortgage Capped Index. The index itself consists of residential and commercial real estate, mortgage finance and savings associations in the U.S. equity market. 
 
In light of your current holdings in American Capital Agency Corp. (AGNC) and Two Harbors Investment Corp. (TWO), it is worth looking at the the top ten holdings of REM. 
 
REM Top Ten Holdings & Weightings
 
ANNALY CAPITAL MANAGEMENT IN     20.48%
AMERICAN CAPITAL AGENCY CORP     20.08%
CHIMERA INVESTMENT CORP                5.86%
HATTERAS FINANCIAL CORP                        4.96%
STARWOOD PROPERTY TRUST INC           4.69%
MFA FINANCIAL INC                                        4.20%
INVESCO MORTGAGE CAPITAL                4.02%
TWO HARBORS INVESTMENT CO.               4.00%
CYS INVESTMENTS INC                                3.86%
CAPSTEAD MORTGAGE CORP                3.11%
 
Total 75.26%
 
You’ll note that American Capital Agency (AGNC) and Two Harbors Investment Corp. (TWO) together account for about 25% of REM. Annaly Capital Management (NLY) alone accounts for close to 21% of the REIT.
 
The benefit of investing in REM versus any of its individual components is, of course, diversification. REM is not held hostage to the fate of any individual REIT. The cost is that its yield is “only” 11.49%. But it’s also worth noting that REM’s top-to-bottom decline in the recent correction was barely 2%. That kept investors in the REIT sleeping well at night.
 
So, buy the iShares FTSE NAREIT Mortgage REIT (REM) at market today, and place your stop at $13.20. Based on previous years, REM should go ex-dividend around June 25 and pay a dividend a week later.
 
On Monday, we hit our stop price in Seadrill (SDRL), so we no longer hold that position in our portfolio. As usual, when we stop out of a stock, sell the related options as soon as possible.

Portfolio Update

Hospitality Properties Trust (HPT) dropped another 1.19% — though it has recovered strongly over the last two trading days. HPT is a HOLD.
 
Global X SuperDividend ETF (SDIV) rose 1.14% this past week. You will be receiving your monthly dividend on June 12. This monthly dividend payer remains a HOLD.
 
Two Harbors Investment Corp. (TWO) ended the week 2.15% higher. Just under its 52-week high, TWO is a BUY.
 
American Capital Agency Corp. (AGNC) rose another 1.39% as mortgage REITs continue their remarkable outperformance. Trading above its 50-day moving average, and hitting a 52-week high yesterday, AGNC is a BUY.
 
Prospect Capital Corporation (PSEC) is expected to pay a dividend of 10.2 cents per share on June 22. Dropping just below its 50-day moving average, PSEC is now a HOLD.
 
 

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3D Systems Corp. (DDD) soared 5.72% yesterday, hitting a record high of $32.72.
 
With your November $30 calls up 50%, sell half of your options here to lock in your gains.
 
Hold on to the stock and your remaining options for now. 
 
There is plenty of time between now and November for potentially even higher gains...
 

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