When 10 and 30 year Treasury yields sit near levels last seen in 2007, mortgage focused stocks suddenly move from the background to center stage. Rapid shifts in funding costs and mortgage rates can reshape income streams, book values, and dividends. For investors, that mix of risk and potential reward is hard to ignore. This article walks through three stocks exposed to this rate shock and explains how each might respond.

The three stocks highlighted below are just a small sample, and the full screen surfaced 22 more U.S. mortgage REITs and mortgage focused lenders with equally detailed stories that are not covered here. If you want to move beyond a short list and start identifying your own highest conviction ideas, head straight into the U.S. Mortgage REITs and Mortgage-Focused Lenders screener.

Two Harbors Investment (TWO)

Two Harbors Investment is a U.S. mortgage REIT that focuses on owning mortgage servicing rights and agency residential mortgage backed securities, which are tied closely to U.S. housing and interest rate trends. The company reports about $640 million in revenue from its real estate investment trust operations, all generated in the United States. Two Harbors Investment has a market cap of about $1.27b, placing it in the mid cap range for U.S. listed REITs.

Investors looking at Two Harbors Investment today are really looking at how a focused MSR and agency RMBS portfolio might respond to one of the sharpest moves in long term Treasury yields since 2007. The company sits at the intersection of mortgage rates, prepayment behavior, and funding costs, which can create opportunities but also exposes it to meaningful interest rate and leverage risk. An 11.3% dividend and forecasts for very strong earnings growth sit alongside a history of losses, a high reliance on external borrowing, and a pending cash merger that has already reshaped expectations. The tension between those moving parts is where the real story begins.

Two Harbors Investment sits at a crossroads where an 11.3% dividend, forecasts for strong earnings growth, and a cash merger are all pulling in different directions. Get the full picture in the 1 key reward and 1 important warning sign

Screen for high-yielding dividend opportunities like Two Harbors Investment

Two Harbors Investment and the two other stocks in this article all came from a single screener, but the real edge comes when you build your own filters. Use our flexible Screener to mix metrics such as valuation, earnings outlook, balance sheet strength, risks and dividends, or tap into the ready made Investing Ideas for curated starting points.

TPG Mortgage Investment Trust (MITT)

TPG Mortgage Investment Trust is a residential mortgage REIT backed by TPG Inc. that focuses on U.S. home loans and mortgage backed securities, ranging from non agency and agency eligible loans to home equity loans and related securities. The company reports about $90 million in revenue from loans and securities plus a small loss in the Other segment, and has a market cap of roughly $215 million, which places it firmly in small cap territory.

Investors looking at TPG Mortgage Investment Trust are really looking at a focused way to gain exposure to higher long term Treasury yields through residential mortgage credit. The stock offers exposure to a portfolio that management describes as less sensitive to rate swings than many mortgage REIT peers, while still tied closely to the steepening yield curve that is reshaping loan yields and securitization economics. Analysts currently have a higher price target than today’s share price, yet the company still carries meaningful risks from high external borrowing, a dividend that is not well covered by earnings, and a history of one off losses. The key question is whether that trade off between income potential and balance sheet strain fits your risk appetite in a world of 5% long bonds.

TPG Mortgage Investment Trust sits where higher long bond yields meet residential credit, yet the real story may be how its funding strain and dividend pressures interact. Read the 3 key rewards and 3 important warning signs (1 is major!)

Angel Oak Mortgage REIT (AOMR)

Angel Oak Mortgage REIT is a U.S. mortgage REIT that acquires and invests in first lien nonqualified residential mortgage loans and related assets, including non agency RMBS, securitization interests and various bridge and construction loans. The company generates about $36 million in revenue from acquiring, investing in and financing mortgage related assets, entirely in the United States, and has a market cap of about $207 million, putting it in the small cap bracket.

Angel Oak Mortgage REIT sits in the path of higher long term Treasury and mortgage rates, with earnings and book value closely tied to how non agency mortgages and securitizations reprice. Analysts see strong earnings growth potential, and management has been reshaping the balance sheet, cutting costs and approving a share buyback. At the same time, a double digit dividend that is not well covered, reliance on external borrowing and recent swings between profit and loss mean funding and payout risk remain front and center. For investors who can accept that trade off, the mix of income potential, index inclusion and rate sensitivity makes Angel Oak worth a closer look.

Angel Oak Mortgage REIT’s mix of non agency mortgages, a double digit dividend, and a fresh balance sheet reset could be masking a very different earnings path. Review the analyst forecasts for Angel Oak Mortgage REIT before the next chapter becomes obvious

Seeking Fresh Alternatives Before They Run

Fresh ideas often move first. Breakout stories can gain momentum while they are still under the radar. Consider researching early, rather than watching opportunities pass by.

• Identify resilient companies before momentum-focused headlines appear by scanning the 80 resilient stocks with low risk scores, which highlights firms with sturdy balance sheets that may still be trading quietly.
• Explore income opportunities that could help steady a portfolio in different rate environments by reviewing the 10 dividend fortresses, which focuses on consistent, higher-yielding payers.
• Follow long term infrastructure themes at an early stage by monitoring the 40 power grid technology and infrastructure stocks, which points to grid and transmission stocks before they attract broader attention.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.