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Two Harbors stock is a potentially attractive investment opportunity in the mortgage REIT sector. The Federal Reserve's decision to lower the federal fund rate in FY 2024 could benefit mortgage REITs by reducing interest expenses and reducing pressure on MBS values. As a result, Two Harbors may see improved portfolio performance and return to book value growth.
Two Harbors Investment Corp. saw its dividend cut by 25% again this year as we predicted due to the volatile and challenging operating environment for mREITs. The company's acquisition of RoundPoint Mortgage Servicing LLC is expected to add $25-30 million to earnings in 2024, which is seen as a bullish. Despite the challenges, the dividend seems secure due to widening spreads, the performance of the MSR port, and the new acquisition.
Two Harbors' book value dropped over $1 per share in the last three months, but investors were expecting worse than that. Management is trying to adapt to interest rate changes, but for now, the value in shares keeps falling.
NEW YORK--(BUSINESS WIRE)--Two Harbors Investment Corp. Announces Earnings Release and Conference Call for Third Quarter 2023 Financial Results.
Two Harbors Investment Corp. has experienced a decline in book value per share due to rising interest rates and mark-to-market adjustments. The future performance of Two Harbors will be heavily influenced by the trajectory of interest rates, but there are signs of inflation cooling which could reduce interest rate volatility. The new dividend level appears to be more sustainable and better covered by earnings.
Two Harbors has been hit by rising interest rates. Wait until the Fed is done hiking before considering mortgage REITs.
Two Harbors Investment Corp. (NYSE:TWO ) Q2 2023 Earnings Conference Call August 1, 2023 9:00 AM ET Company Participants Maggie Karr - Head of Investor Relations William Greenberg - President and Chief Executive Officer Mary Riskey - Vice President and Chief Financial Officer Nicholas Letica - Vice President and Chief Investment Officer Conference Call Participants Douglas Harter - Credit Suisse AG Bose George - Keefe, Bruyette, & Woods, Inc. Trevor Cranston - JMP Securities LLC Kenneth Lee - RBC Capital Markets Richard Shane - JPMorgan Chase & Co. Eric Hagen - BTIG Operator Good morning. My name is Klement, and I will be your conference facilitator.
Two Harbors Investment Corp. is an agency mortgage REIT (mREIT), which also holds mortgage servicing rights. In terms of the common stock, I will discuss a pair trade - long TWO and short Armour Residential. I will show that TWO preferred stocks are the best agency mREIT preferreds with preferred “A” yielding almost 10% and all with by far the best future floating rates.
the recent TWO share price of $13.71 represents a price-to-book ratio of 0.8 and an annual dividend yield of 13.13%
Two Harbors' 25% dividend cut and declining book value render its common shares a risky investment. The preferred shares offer better value with a 10% yield on cost for 81 cents on the dollar. A possible normalization of macroeconomic conditions could lead to a recovery of the commons.