Barron's Streetwise
Don’t Lick That Frog—the Pull and Peril of a 17% Yield
Oct 27, 2023
This podcast discusses the risks of high-dividend yield stocks, such as Eastman Kodak, and the benefits and risks of investing in mortgage REITs. It also explores investing in collectibles vs. buying businesses, understanding inflation and predicting swings in supply and demand, and factors affecting returns on collectibles.
30:55
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Quick takeaways
- Investing in mortgage REITs can offer high yields, but comes with risks related to interest rate fluctuations and leverage.
- Investing in collectibles should be driven by personal enjoyment rather than purely financial considerations, as their prices are influenced by unpredictable short-term swings in supply and demand.
Deep dives
Investing in Mortgage REITs: Understanding the Risks
Mortgage REITs, such as Annaly Capital Management, have been generating significant yields, often double the average yearly return of the stock market. However, these high yields come with risks related to interest rate fluctuations. When rates rise, mortgage securities can lose value, and lending spreads can narrow. Additionally, mortgage REITs employ leverage, which amplifies both gains and losses. Federal Reserve policies, like quantitative easing or tightening, can also impact the value of mortgage portfolios. While UBS predicts a rebound in mortgage REITs, others, like Edward Jones, caution against investing in this sector due to historical low returns and volatility.
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