11.61% Dividend Sustainability By A Brilliantly Managed REIT

Time to break down one of the strong REITs. If you have any questions, feel free to ask. This company predicted a flattening yield curve. Superior hedging techniques will help to sustain the dividend over the next few quarters. The mortgage REIT environment is worsening, but it won’t catch up to it for a while. Less prepayments has resulted in a drop in amortization costs over the past couple of quarters.

CYS Investments (NYSE:CYS), in the past, was given a strong buy rating by me. Based on current prices and the macroeconomic environment, it has become a Sell. The company still has a strong management team. In the past, CYS predicted a flattening yield curve. The mortgage REIT invests exclusively in agency MBS. With the prediction of a flattening yield curve, the company was investing in fixed-rate mortgages with lower coupon rates. Why this strategy? CYS viewed the higher rate securities as a massive risk with a flattening yield curve. As the yield curve flattened, prepayments on loans went up substantially.

Source: Seeking Alpha

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