Cramer lately has been getting some questions about mortgage REITs, or real estate investment trusts that manage portfolios of mortgage-backed bonds and pay out big dividends. But while the yields are significant, he said, the industry itself is “complicated and nontransparent.”
Invesco Mortgage Capital and Walter Investment Management are the two stocks that viewers have wondered about, and they yield 15.7 percent and 10.9 percent, respectively. Still, it’s what the REITs actually own that’s the problem for Cramer—we don’t know. That and a lack of clarity on interest rates from the Federal Reserve. He likened these two to blind-pool hedge funds, which make them too risky to recommend.
That’s why he is willing to endorse only Annaly Capital from this group. This trust has a history of strong performance and dividend paying that investors can trust. No, we don’t know what NLY owns at any given moment either, but CEO Mike Farrell posts his outlook and ideas on the Annaly website for all to see. That attempt at transparency is one thing that sets this stock apart.
Not that Annaly is perfect. Cramer said it takes him “forever” to read Farrell’s monthly comments because they’re so hard to understand. “This kind of real-estate-investment-trust management is like brain surgery,” he said. But because Farrell has delivered time and time again, Cramer’s willing to bank on the CEO’s 15.2 percent dividend yield where he won’t for the others.
Plus, Annaly’s working. So why trade it in for an unknown? Sure, there’s a chance these other REITs will outperform for a quarter or two, Cramer said, but “we have to stick with managements that we trust.”
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