The one number every new mortgage REIT holder should watch from day one

Where do you actually find book value per share? I looked at two of these on a brokerage page and got the yield, the payout, and nothing that looked like a balance sheet. Is it in the quarterly release or do you have to go into the 10-Q?

@chriswalton8 the bit worth poking at is the $0.17 holding flat for four quarters straight. That is the whole return. Take an operator who borrows short to build something with a fixed sale price: a jump in borrowing cost eats margin fast, and these companies look to be doing exactly that at scale, borrowing short in repo and holding long mortgage bonds. So what happens to that $0.17 if funding cost rises 75 basis points while the bonds already held are locked in? Genuine question whether they hedge that out or simply absorb it.

Nice result, but the dividend held flat by luck as much as anything. It's a distribution, not a coupon. Nobody owes it to you.

These are worth circling for a while before pulling the trigger, so this is a useful data point. Two things worth asking before doing anything. First, tax. A lot of mortgage REIT distributions come through as ordinary income rather than qualified dividends, and sometimes part of it is classed as return of capital, which lowers basis instead of being taxed that year. The 1099-DIV splits it out. A CPA should weigh in on what that means for a given return before committing anything sizeable in a taxable account. Second, one shot versus averaging in matters. $5,000 at one price on one day is a clean experiment, but it means the whole result is a function of the day the trade was placed.

The number worth watching is leverage. Agency names commonly run somewhere in the mid to high single digits of debt to equity, and that ratio is what turns a small move in bond prices into a large move in book value per share. It's disclosed in the quarterly supplemental, usually right near the top. Also worth knowing what the hedge book looks like. Management can and does change it between quarters. Two agency REITs holding almost identical bonds can post very different book value moves in the same quarter purely because one had more of the position hedged. So when book value only slips 15 cents, some of that is the manager's positioning, not the market being calm. What's the split between agency and anything else? Pure agency means taking rate and prepayment risk with government credit behind the paper, which is a genuinely different animal from a commercial mortgage REIT holding bridge loans.

Sorry, basic one. What does agency mean here? I've read the word four times in this thread and I've been assuming it means a real estate agency, which I'm now fairly sure is wrong.

@megan_doyle15 agency means the mortgage bonds are guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae, so if the homeowner defaults the investor still gets paid principal and interest. That leaves rate risk and prepayment risk on the table, with credit risk largely off it. Non-agency means no such guarantee, and the investor owns the borrower's credit. @chriswalton8 a 15 month window is not a cycle. That's a period where funding cost and asset yield happened to move in a way that left the spread intact. Run the same position with the spread compressed 40 basis points and 8 turns of leverage against it, and a dividend that held steady before does not hold steady then. That's the scenario worth writing down and sitting with, because it's the ordinary case for these instruments, not the tail. The other useful step is comparison. A gain of roughly 7 percent over 15 months means nothing on its own. What did a plain aggregate bond fund do over the same period, and what did an equity REIT index do? If the answer is that mortgage REIT risk was taken on for bond fund returns, the trade worked and the reasoning behind it didn't.