6 Commercial Mortgage REITs With Huge Dividends May Benefit From Rising Interest Rates – 24/7 Wall St.
One of the main reasons Americans are suffering from the worst inflation in 40 years is that the Federal Reserve waited too long to finally start raising interest rates from what was effectively zero. That mistake, which Treasury Secretary Janet Yellen finally admitted recently, combined with massive and, in many cases, unnecessary government spending, has beleaguered consumers struggling to fill their gas tanks and pay for groceries. .
One industry that could benefit from rising interest rates is commercial real estate (CRE) mortgage real estate investment trusts (REITs). Until recently, the specter of a rate hike was negative, after years of pandemic-driven rate cuts. Raymond James analysts believe the tide has turned for the group, and noted in a recent research report:
Over the past two years, CRE REIT corporate earnings have benefited from in-the-money LIBOR floors for pre-COVID vintage loans. As a result, the rate hikes since the start of the year have had a major negative impact on portfolio returns. However, we believe that the second quarter is the inflection point. Given the characteristics of the portfolio as of March 31 and the rate increases since the beginning of the quarter, we believe that higher rates are now a tailwind for the majority of these companies, and we expect higher rates be a tailwind for the ten companies in our coverage before the end of the year. given the current interest rate outlook.
We selected the 10 companies in the company’s coverage universe that were rated Strong Buy or Outperform, looking for those that pay the highest dividends. We’ve found six that look like solid ideas for growth and income investors looking for a reasonably safe total return. It is important to remember, however, that no single analyst report should be used as the sole basis for any buy or sell decision.
ARES Commercial Real Estate
Investors can acquire shares of this leading company before its next payment date. ARES Commercial Real Estate (NYSE: ACRE) is a specialty finance company that originates and invests in CRE loans and related investments in the United States. It offers a range of financing solutions for owners, operators and developers of CRE properties.
The company issues first mortgage loans, subordinated debt products, preferred equity investments in real estate, mezzanine loans and other CRE investments, including commercial mortgage-backed securities (CMBS).
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Raymond James’ report said, “Given the benefits of higher rates, we expect ARES Commercial Real Estate to continue paying the additional quarterly dividend for the foreseeable future.”
Investors receive a distribution of 9.00%. Raymond James’ price target of $16.50 is the same as the consensus figure on Wall Street. The stock closed Thursday at $14.66.