NEW YORK, NY--(Marketwire - Nov 13, 2012) - Shares of high yielding REITs have been relatively flat this month. The Vanguard REIT ETF -- which tracks the performance of an index that measures the performance of publicly traded equity REITs -- has stalled after the Federal Reserve in September announced plans to purchase $40 billion in mortgage-backed securities a month. Five Star Equities examines the outlook for diversified REITs and provides equity research on Hatteras Financial Corp. (NYSE: [ HTS ]) and Two Harbors Investment Corp. (NYSE: [ TWO ]).

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Investors have long been attracted to the high yields of mortgage REITs, which currently averages around 13 percent, nearly 7 times the average dividend yield of the S&P 500. The Fed's announcement has caused drops in spreads, bond yields and homeowner's borrowing costs, and as a result company's earnings and dividends have been under pressure.

"Through the use of leverage, these REITs have yields in the midteens. At this time, mortgage REITs are benefiting from historically low short-term rates, but tightening spreads, or a sudden freeze in the credit markets, would have a significant negative impact on these firms," Morningstar analyst Patricia Oey wrote in a report.

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Hatteras Financial operates as an externally-managed mortgage real estate investment trust (REIT). It invests in single-family residential mortgage pass-through securities guaranteed by a U.S. Government agency or issued by a U.S. Government-sponsored entity. The company offers an annual dividend of $3.20 for a yield of roughly 12.3 percent.

Two Harbors Investment Corp. currently offers investors an annual dividend of $1.44 per share for a dividend yield of roughly 12 percent. The company has recently announced the appointment of William Roth as Chief Investment Officer, effective January 1, 2013. For the third quarter of 2012 the company reported core earnings of $84.4 million, compared to $76.1 million in the second quarter of 2012.

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