Thinking about buying Ellington Financial Corp for its 12.1% dividend? It is not the only option

Benzinga and Yahoo Finance LLC may earn commission or revenue for some articles through the links below.

With a current dividend yield of 12.1% and a monthly dividend payment, Ellington Financial ( NYSE:EFC ) often attracts the attention of investors looking for attractive yields. Ellington Financial is a publicly traded mortgage real estate investment trust (REIT). Mortgage REITs generally invest in mortgage loans or securities related to residential and commercial properties. As a specialty finance company, Ellington Financial focuses on acquiring and managing a diverse portfolio of mortgage-related assets, including residential and commercial mortgage-backed securities, mortgage loans and consumer loans.

Trending now:

While Ellington Financial’s current yield is attractive, mortgage REITs tend to have a high level of risk, which may not make them suitable for all investors. What’s more, Ellington’s dividend payout has fluctuated widely over the years, and the stock price has fallen somewhat, down more than 25% over the past five years, as it never fully recovered from a sharp downturn during the pandemic . Investors may want to consider all available options before going all-in with Ellington Financial.

Ellington Financial Inc.: An Overview

Ellington Financial Inc. is distinguished by the strategic management of a diversified portfolio of mortgage assets. The company’s portfolio includes residential mortgage-backed securities (RMBS), commercial mortgage-backed securities (CMBS), mortgage loans and other real estate-related investments. EFC uses leverage to enhance returns, similar to other mortgage REITs, but with a diversified approach that seeks to mitigate risk. The company also operates Longbridge, a reverse mortgage platform.

In the second quarter, Ellington Financial reported net income of $52.3 million, or $0.62 per share. Ellington changed his strategy to suit the market. During the quarter, the company added to some of its lending strategies, including home equity lines of credit (HELOC) and closed second lien loans, reverse home equity loans, commercial mortgage loans, performing and non-performing residential mortgage loans, securities commercial mortgage-backed securities (CMBS) and collateralized loan obligations (CLOs). At the same time, it reduced lower-yielding sectors, including agency and non-agency residential mortgage-backed securities.

The story continues

Speaking to analysts, CEO Larry Penn highlighted the value of this diversification: “Our investment plan across our diversified loan origination channels is strong, and the loan originators we’ve invested in not only provide healthy flow in that pipeline, but also generates operations. income itself because we have equity investments in the same originators”.

A changing interest rate environment may change the picture somewhat for Ellington Financial. One concern is that cash-out refinances will become preferable to HELOCs. However, Larry Penn said, “You’re going to need a pretty big drop, I think, before HELOCs and closed-end secs don’t make as much sense to people anymore.”

On the earnings call, Omega Family Office’s Lee Cooperman asked about the future of the monthly dividend, which is currently at $0.13. Investors hoping for a hike will be disappointed. Penn clarified that it is satisfied with the current dividend and has no plans to increase it.

Ascent Income Fund: An alternative outside the stock market

For investors looking for high returns, publicly traded mortgage REITs aren’t the only option. An alternative is EquityMultiple’s Ascent Income Fund. It focuses on private credit investments targeting stable income from senior commercial real estate debt positions. The focus on senior debt and diversification across borrowers, geographies and property types is intended to mitigate risk and provide greater stability of returns.

A key advantage of investing in a private REIT like Ascent Income Fund is that its share price is directly linked to the fund’s net asset value (NAV), which protects investors from some of the wild swings in volatility that appear on the stock market. The Ascent Income fund has a historical return of 12.1%. Investors can opt for quarterly payments or reinvest their dividends and compound their returns. Currently, reduced competition from regional banks has created a favorable environment for those interested in investing in real estate debt. The minimum investment of the Ascent Income Fund for beginner investors is $5,000.

Mortgage REITs will always be a popular investment choice for those looking for income. However, long-term investors know that they can be heavily exposed to cyclical risks. For Ellington Financial, the increasing diversification of its loan portfolio may offer some protection. In the past, the dividend yield has fluctuated dramatically. Investors should be aware of other ways to invest in debt and receive high returns outside of the traditional stock market.

This Article Considering Buying Ellington Financial Corp For Its 12.1% Dividend? It’s not the only option appeared first on Benzinga.com