Michael P. Ehline Finance Law Blog on Lawyers.com

Real estate trusts have legal obligation to pay big dividends

Thursday, February 16, 2012 by Michael P. Ehline

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In legal real estate related news, Mortgage real estate investment trusts, which are also known simply as “REITS”, invest in government-issued securities that are backed by
residential mortgages. These REITs are eligible to borrow short-term money to
fund investments. The interest rates are currently kept low by a Federal Reserve
board determined to grease the economy. Thus these REITs are making big-time
profits.
Since they pay no federal income tax on their income generated by
their investments-made cheap by that low short-term interest- they in turn are
legally obliged to actually pay out most of their income to shareholders. Some of my friends who live in Maui like these to supplement their retirement income, though I advise you to speak to a financial professional before making any such investments.
An
example of these money-generating machines is American Capital Agency (AGNC).
They manage nearly $60 billion in assets and pay about a 19% yield. Annaly
Capital Management (NLY) is the largest REIT with $110 billion under management
and has been generating about 13% in dividend yield. Another one is Armour residential REIT, inc. (ARR) which according to Google finance features an 18.80% dividend yield as of Feb. 16, 2012. In addition, it pays a monthly dividend, which can be a plus for income investors overall. Recently the SEC began a
review to determine whether more regulation of the industry is needed. My friend who is a Maui real estate lawyer was telling me about this. This
could auger trouble in the future. Some months ago when the review was first
launched the REIT sector took a big hit. Maybe the downside is already built-in
and this may be a prime time to take advantage of this very special type of
investment.
 
Posted at 18:53 PM
Topic: Finance
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