Real estate investment trusts, or REITs, are often a great source of passive income as the names in this sector are required by law to distribute at least 90% of their taxable income in the form of dividends.
This usually leads to stocks yielding well above the average yield of the S&P 500 index, which is 1.3% at the moment. In fact, it isn’t uncommon to find shares of REITs trading with very high dividend yields, sometimes in the double-digit range.
Of course, along with high yields can come high risk. This is especially true for investors who are looking to own shares of mortgage REITs. These trusts purchase mortgages and then use the monthly mortgage payments to distribute dividends. Names in this industry often borrow money to acquire mortgages. They then profit off the difference in the rates.
With the Federal Reserve telegraphing to the market that they intend to raise interest rates several times this year and next, investors of mortgage REITs need to be extremely diligent in the names that they choose to invest in.
This article will examine three mortgage REITs that we feel are among the best in the industry.
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