Will Higher Interest Rates Mean Lower Dividends for These 3 Mortgage REITs?

Mortgage REITs (real estate investment trusts) are usually a favorite of yield-hungry investors (and for good reason -- they often have yields eclipsing 10%), but lately they've fallen out of favor. The REITs borrow money to buy and hold mortgages and mortgage-backed securities (MBS).

In good times, they earn the spread (called the net interest margin) on the difference between the rates on the mortgages they hold and cost of the debt they use to finance the mortgages. But when rates go up, they can start to lose money fast and that can compromise their ability to pay out the mandatory 90% of their taxable earnings as dividends.

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Source Fool.com