Two Harbors Funding (NYSE: TWO) is a 14-year-old New York-based mortgage actual property funding belief (REIT). It invests in residential mortgages.
The inventory has an enormous 17% dividend yield, which is kind of enticing to revenue traders. However can traders depend on the yield staying that giant going ahead?
Once we analyze mortgage REITs, we use a metric referred to as web curiosity revenue (NII). Mortgage REITs borrow cash after which lend it out at a better rate of interest. NII is the distinction between how a lot the corporate earns in curiosity (minus bills) and the way a lot it pays in curiosity.
Sadly for Two Harbors, its NII has been evaporating.
Since 2019, the corporate’s NII has plummeted 86%. And this 12 months’s NII is forecast to drop one other 63% from final 12 months’s whole.
This might be an enormous drawback with regards to paying the corporate’s dividend.
Final 12 months, Two Harbors paid shareholders greater than $290 million in dividends – that’s practically eight instances more money than it introduced in.
To say that’s unsustainable could be like saying San Francisco is a bit untidy nowadays – a dramatic understatement.
Although the dividend has been reduce just lately, Two Harbors remains to be projected to pay out $232 million in dividends this 12 months, although NII is predicted to return in at lower than $14 million.
Unsurprisingly, as NII has fallen, so has the corporate’s dividend.
Two Harbors has reduce its dividend 5 instances over the previous 10 years.
Dividend Security Score: F
In case you have a inventory whose dividend security you’d like me to research, go away the ticker within the feedback part. And make sure to take a look at Rich Retirement to see if I’ve written about your favourite inventory just lately. Simply click on on the magnifying glass on the prime proper a part of the web page and sort within the title of the corporate.