Two Harbors Investment Corp.
), a real estate investment trust (REIT) that primarily invests in
residential mortgage-backed securities (RMBS), has recently reduced
its quarterly dividend from 40 cents to 36 cents per share for the
third quarter of 2012. The dividend is payable on October 22, 2012,
to shareholders of record on September 24.
REDWOOD TRUST (RWT): Free Stock Analysis Report
TWO HARBORS INV (TWO): Free Stock Analysis
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The current dividend equates to a 10% year-over-year decrease in
the dividend payout and is based on the evaluation of the present
market scenario. The company's investment strategy takes a holistic
view of the rapidly evolving market and deploys a dynamic capital
allocation approach to focus on the relative value of the various
sectors within the mortgage market.
Based on the closing price of $11.90, the current dividend yield is
fairly impressive at approximately 12.1%. A steady dividend payout
facilitates the long-term strategy of Two Harbors to provide
attractive risk-adjusted returns to its stockholders. The company
has also historically promulgated a dividend reinvestment and
direct stock purchase plan through which stockholders may purchase
additional shares of the company by reinvesting some or all of the
cash dividends received on the common shares.
Investors looking for high dividend yields are increasingly
favoring REITs like Two Harbors. Solid dividend payouts are
arguably the biggest enticement for REIT investors as U.S. law
requires REITs to distribute 90% of their annual taxable income in
the form of dividends to shareholders.
Two Harbors primarily acquires, owns and manages a portfolio of
Agency and non-Agency RMBS and related investments. The company is
externally managed and advised by PRCM Advisers LLC, a wholly owned
subsidiary of Pine River Capital Management L.P.
Agency RMBS are those where principal and interest payments are
guaranteed by the U.S. government or government-owned entities,
such as Fannie Mae, Freddie Mac and Ginnie Mae. On the other hand,
non-Agency RMBS are neither issued nor guaranteed by the
The residential mortgage market in the U.S. has experienced
defaults, credit losses and liquidity concerns in the recent past.
These factors have impacted investor perception of the risks
associated with real estate related assets, including agency
securities and other high-quality RMBS assets.
As a result, values for RMBS assets, including some agency
securities and other AAA-rated RMBS assets, have experienced a
certain amount of volatility. Increased volatility and
deterioration in the broader residential mortgage and RMBS markets
may adversely affect the performance of Two Harbors in the future.
We presently have a Neutral recommendation on Two Harbors, which
currently has a Zacks #3 Rank that indicates a short-term Hold
rating. However, we have an Outperform recommendation and a Zacks
#1 Rank (short-term Strong Buy rating) for
Redwood Trust Inc.
), one of the competitors of Two Harbors.