An income-producing asset class made its way into the spotlight this month – and it may be attractive for investors who are willing to take some risk in exchange for hefty dividend yields. Mortgage real estate investment trusts hold mortgages and mortgage-backed securities. They lend money to developers and other parties on a range of real estate properties, and they invest in mortgage loans. They’re different from equity REITs, which purchase real estate and collect rents from tenants. Earlier this month, mortgage REITs got a shoutout from legendary investor Bill Gross, who posted on social media platform X , “I own [mortgage] pass-thru REITs like AGNC yielding 13% that will do well at 4.25 on the 10 year but it’s hard to believe that yields go lower without visible progress on inflation.” Indeed, AGNC Investment is touting a current dividend yield of 14%, and the stock is up about 12% in 2025 – tempting in a year when the S & P 500 is down more than 3%. But investors should resist the urge to merely rush into the space as they seek outperformance and income at a time when markets are rocky. “You have to understand what you’re buying,” said Philip Blancato, chief market strategist at wealth management firm Osaic. “There are scenarios where you can get whipsawed in these things.” Greater risk, richer yields Mortgage REITs have a different risk profile compared to their equity REIT cousins. For starters, they can be highly levered, meaning they use a lot of debt to buy up mortgages. While this leverage can amplify returns, it can also raise their risk profile, Blancato said. Mortgage REITs can be five to seven times levered – that is, five parts debt to one part equity, said Matthew Malone, head of investment management at Opto Investments. Interest rate risk, or duration, bring in another element of risk. Long mortgages offer the prospect of higher yields, but they’re also exposed to fluctuations in interest rates. This sensitivity to swings in rates is known as duration. Credit quality is also another big consideration. A mortgage REIT can opt to snap up agency mortgages – which tend to be higher quality – or in a bid for higher yields, they can snap up mortgages that are riskier and have higher default risk. Scenarios in which rates are rising can be dangerous for mortgage REITs, Blancato said. “There are some train wrecks out there – companies that made the wrong interest rate bet, they went too long in duration and had to go down to zero income payments because they had to recoup their principal, reset and then lever up again,” he said. Those hazards should make investors think twice before they play in the space, particularly if they need that portfolio income. An environment in which interest rates are moving sideways is one that works well for mortgage REITs, Blancato said. Right now, the 10-year Treasury yield is trading at about 4.2%, well off January’s high of about 4.8%. Mortgage REITs that are faring well thus far in 2025 include Annaly Capital Management , which is up nearly 19% and offers a dividend yield of nearly 13%, and Dynex Capital , which is up 11% and has a dividend yield of 14.5%. Malone noted that names like Annaly and AGNC are trading at premiums to their net asset value, and that’s another consideration for prospective investors. “If you can buy at a discount to NAV, you might have some appreciation built in,” he said. “It’s more like: Are you a yield buyer or are you looking for appreciation and getting the yield?” Who’s using them? Mortgage REITs can be dangerous for individual investors to snap up, but institutional investors – including firms that design portfolios for wealth managers – may tap the space as a diversifier alongside other income-generating investments. Those who participate in the space need to understand the underlying portfolio of a mortgage REIT, with an eye toward quality credit, shorter duration and reasonable yields. “Make sure they own Treasurys, look for duration that’s relatively short, and don’t go for the biggest yield,” said Blancato. “Each one has its own little niche to it that makes it interesting. If you get it wrong, who cares if you have an 11% dividend yield if you lost 80% of your value in a couple of years.” These REITs shouldn’t make up a sizable portion of any given portfolio, based on their risk characteristics. “It’s a sweetener to the coffee, but it’s not the coffee,” said Blancato.
