This might seem surprising, but I am suspicious of high dividend yields…

As a professional dividend stock analyst, I frequently examine the stock market for high-yield dividend stocks. My searches commonly create hundreds of results. Presently, for example, 95 stocks are yielding over 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 typically consider high dividend yields the similar way I would consider a colourful snake: I steer clear.

That said, you can find all the time exceptions to this rule. Throughout the years, I’ve been able to find pockets of rock-solid high-yield stocks dumped in the trash. In recent times, I discovered one of those “pockets” in mortgage industry…

There are two different sorts of mortgages. 1. Agency Mortgages: The mortgages insured from the government. 2. Nonagency Mortgages: These mortgages would not have government backing and they are issued by private lenders like banks or mortgage companies.

In past 3 years, investors who invested their money in nonagency mortgages have lost trillions of money. The recession has made it much tricky for the property owners to make their monthly mortgage repayments. Non-Payment, delinquencies and 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 made huge losses for the investors who touched them in the last 10 years. They are the final investment choice that you would consider buying if you are planning for investment. I will agree with you, furthermore leave them with the rest of the junk my screens turn up.

In general, I’d agree with you. However take a look at this for a while.

TransUnion is the 3rd major consumer credit reporting agency in United States, that provides credit-related information to potential creditors. Every month, TransUnion measures the number of mortgages that have gone 60 days or more without the borrower making a payment.

In accordance to the latest 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%.

One of the fundamentals of being profitable in the stock market is to buy when things go from bad to less bad. And that is what happening in the mortgage market right now. A smaller number 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 concentrate in investing in mortgages. Nonagency mortgages remain transacting, on average, approximately seventy cents on the dollar. The few mortgage REITs that invest in nonagency mortgages are trading like junk bonds and paying 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.

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