Invesco Mortgage Capital: Buy the Dip?
Mortgage real estate investment trusts (REITs) invest in real estate securities using borrowed money. In normal markets, that strategy work fine, and isn't much different than your neighborhood savings bank.
But when investors and institutions become fearful, they go on a "buyer's strike," and the banks that loaned money to the REITs start to worry about getting repaid. This can create a negative feedback loop where forced selling drives prices down, which triggers even more forced selling. For REITs with assets that are illiquid or hard to value, it can become a death spiral. Disruptions in the mortgage market tend to occur every decade or so. We saw one after the housing bubble burst in 2008. Before that, old-timers will remember 1994, when Orange County in California went bankrupt and the biggest mortgage arbitrage hedge fund on Wall Street blew up.
This year, the COVID-19 crisis has been rough on mortgage REITs in general and Invesco Mortgage Capital (NYSE: IVR) in particular; Invesco had to dramatically shrink its investment portfolio and has cut its dividend twice. Now that the dust has settled, is the stock safe to buy?
Source Fool.com
