Don't Fall for These 2 Dividend Stocks: Cuts Are Coming
Mortgage real estate investment trusts (mREITs) are often known for their alluring high-yielding dividends. AGNC Investment (NASDAQ: AGNC) and Annaly Capital Management (NYSE: NLY), for example, currently pay a 15% and 16.4% yield, respectively.
It's easy to get drawn into a dividend stock that pays five to 10 times the average yield of the S&P 500, but investors shouldn't be fooled. Cuts are coming for these ultra-high-yielding dividend stocks. Here's why.
Rising interest rates impact nearly every facet of a mortgage REIT's business. Mortgage REITs rely on borrowing heavily in order to grow their balance sheets. When the cost of borrowing increases, the company's spread between its cost of capital and the interest collected on the loan (called a net spread or net margin) narrows. This leads to smaller profits for the company on its portfolio of loans.
Source Fool.com
