Big yield and big upside create an attractive investment. The fixed-rate dividend is out of fashion, but investors previously accepted a yield in the upper 7% range when the 10-year Treasury was over 3.2%. The biggest risk comes from its portfolio. However, the leverage isn't excessive and there is far more common equity than preferred equity. That provides preferred share investors with a shield.
MFA Financial (MFA) has two preferred shares: MFA-B (NYSE:MFA.PB) and MFA-C (MFA.PC). I cover all these shares in my frequent articles on mortgage REITs, but I rarely focus the entire article on one share. That can make it hard for some investors to find the articles if they aren't following me. MFA-B has a fixed-rate dividend, which is clearly out of favor today as rates ripped higher. Beyond higher Treasury rates we're also seeing wider credit spreads. That combination pushes share prices lower and creates a nice bargain.MFA-B has a yield of 10.24%. If we adjust for dividend accrual (as we should for preferred shares), the stripped yield is 10.3%.
Source: Seeking Alpha
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