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Many investors are undeniably drawn to a real estate investment trust (REIT) offering a double-digit dividend yield and monthly distributions. If you prioritize returns and high dividend yield over risk or want to turbocharge your portfolio, you may want to consider Ellington Financial.
Investor alert: Triple-net properties can put a check in your pocket every quarter—a can’t-miss opportunity for accredited investors.
Ellington Financial (NYSE: EFC) is a mortgage REIT offering a 12.12% dividend yield. It makes money by investing in mortgage servicing and mortgage-backed securities rather than generating returns from rental income or appreciation like an equity REIT. Ellington divides its business into two sectors. The investment sector purchases residential and commercial mortgages, mortgage-backed securities, and derivatives to deliver risk-adjusted returns.
The second sector of Ellington Financial’s operation is called the Longbridge Segment. The Longbridge Segment handles loan origination and servicing on reverse mortgages. Both segments received a significant boost last December when Ellington merged with mortgage REIT Arlington Asset Corp.
Ellington Financial is currently trading around $13.00 per share, and despite its recent merger, Benzinga estimates its market cap at roughly $1.1 billion. Some analysts are naturally concerned that, like all mortgage REITs, Ellington is particularly sensitive to high interest rates, which can diminish returns and profits. Nevertheless, Ellington Financial appears to have developed an effective interest-rate hedging strategy that allows it to maintain returns even in the current environment.
If, as many investors anticipate, there is a rate cut in September, Ellington Financial’s position is expected to improve further. However, even with the calculated risks, Ellington Financial offers returns that are worthy of consideration. After all, it’s paying a monthly distribution on an annual 12.12% dividend yield. If you had invested $10,000 in Ellington Financial a year ago, you’d have pocketed a tidy $1,212 payout by now.
The total net worth of these five entrepreneurs is $223 billion – they all believe in one company where you can lend money to companies at 7-9% APY.
Considering this, the relatively higher risk associated with a mortgage REIT might be worthwhile for some investors. Imagine a conservative investor whose portfolio is stacked with reliable REITs paying out more conservative dividend yields or even strong annual dividend yields, but on an annual basis. The potential benefit to the portfolio of double-digit dividends and monthly distributions might make a small to medium-sized investment in Ellington worth the risk.
On the other hand, Ellington Financial is also a potential option for investors focused on getting a strong dividend return from a short to medium-term investment. Putting $50,000 into Ellington for just 36 months could potentially net $18,000 in dividends. Reinvesting those dividends into Ellington Financial shares (assuming the price averages $13 for that time) will net another 1,385 shares.
Ellington Financial has an element of risk because of its comparatively small market cap and the possibility of future interest rate increases. However, it’s also worth noting that Ellington Financial has endured high interest rates for the last several years while still paying dividends. A monthly distribution and 12% dividend yield are nothing to sneeze at. This is why Ellington Financial is worth a look from REIT investors.
Disclosure: Estimated dividends and share prices fluctuate daily. There may be some variance between the current and estimates when this article was written.
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This article Turbocharge Your Returns With This 12% Dividend REIT That Makes Monthly Distributions originally appeared on Benzinga.com
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