SOURCE: The Bedford Report

The Bedford Report

July 28, 2011 08:16 ET

Downgrade of US Credit Rating a Danger to REIT Dividends

The Bedford Report Provides Equity Research on American Capital Agency & Invesco Mortgage Capital

NEW YORK, NY--(Marketwire - Jul 28, 2011) - With S&P warning there is 50-50 chance of a downgrade to the US' Credit Rating, investors are looking for safe havens. Traditionally, high yielding REITs garner attention due to their reliable income. However recent reports warn that a downgrade to US government debt could have a sizeable impact on REIT earnings -- and their dividends. The Bedford Report examines the outlook for diversified REITs and provides equity research on American Capital Agency Corporation (NASDAQ: AGNC) and Invesco Mortgage Capital, Inc. (NYSE: IVR). Access to the full company reports can be found at:

Several mortgage REITs are trading close to 52 week lows at the moment as analysts consider these companies at risk from the potential downgrade of US government debt. Agency Mortgage REITs such as American Capital Agency have portfolios made up principally of mortgages insured by the federal agencies Fannie Mae, Freddie Mac and Ginnie Mae. A downgrade in US debt would make paper from these federal agencies suffer a downgrade along with most other government-related bonds.

According to Jon D Markman, editor of Strategic Advantage, if the paper is downgraded their prices will drop and yields will rise. "When the price of collateral drops, a holder has to put up more money or other paper to replace that value -- much like a margin call," argues Markman. Markman adds that these kinds of developments can lead a REIT to cut back on its dividend.

The Bedford Report releases stock research on REITs so investors can stay ahead of the crowd and make the best investment decisions to maximize their returns. Take a few minutes to register with us free at and get exclusive access to our numerous analyst reports and industry newsletters.

Earlier this week American Capital Agency reported net income for the second quarter of 2011 of $177.8 million, or $1.36 per share. Taxable income for the second quarter was $1.56 per share, or $0.20 higher than GAAP net income per share for the quarter. Presently the company pays an annual dividend of $5.60 per share for a massive yield of around 19 percent.

Invesco Mortgage Capital currently pays an annual dividend of $3.88 a share for a yield of around 18.5 percent. Yesterday the company posted 39 percent year-on-year increase in quarterly net income, driven by an increase in average earning assets as the Company invested the funds from the follow-on common stock offerings completed in March and June 2011.

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