Yay or Nay? CYS Investments, Housing Market and New Dividend Taxes
NEW YORK, January 15, 2013
NEW YORK, January 15, 2013 /PRNewswire/ --
The REIT industry, including CYS Investments has been faced with a series of
challenges in the past months. How will the major dividend tax increase in
2013 affect the industry and can gains within the housing market offset any
The effects of leverage are becoming apparent as CYS Investments, Inc. (NYSE:
CYS) [ Full Research Report ] ^[(1)] is realizing slightly increased effects
of the surrounding industry conditions One of the major concerns in the
forefront of many investors is the upcoming dividend tax increase, and how it
plays into their individual investments.
"The prevailing fear is that if taxes for dividends increase, dividend
yielding companies could grow less attractive," a strategist at Bank of
America said. The good news is that mortgage REITs are already taxed 90
percent of their taxable income through dividends, and are likely to have only
slight increase in taxation, compared to almost triple for other investments.
Despite generous dividends, prices for mortgage REITs struggled in Q3 and Q4
of 2012. Demand for mortgage securities rose, yields fell, and the mortgage
REITs' earnings declined. CYS Investments had an empty slush fund and returns
were weak, suffering a price decline of approximately 20 percent. However, due
to its leveraged position, a turn in the industry could mean a turn in tides
In 2013, mortgage REITs are expected for a comeback, primarily due to higher
taxes on dividends and capital gains for upper-income earners, making the
investments on mortgage REIT more appealing. Companies in the REIT industry
don't pay corporate taxes and are not qualified for the lower dividend tax
rate. Furthermore, a big portion of REIT dividends, specifically those of CYS
Investments, consists of return of capital, reducing the investor's taxable
income in the year the dividend is received, thus lowering the cost basis of
the investment and defers taxes until the investment is sold. CYS Investments
is a major player in the mortgage REIT sub-industry; and this good news will
definitely be advantageous to the company.
CYS Investments will be able to bounce back to the top, thanks to the
government's interest rate policy that allows REITs to borrow money very
cheaply and profit from buying large interest rate spreads on long-term MBS
(mortgage-backed securities). As of January 14, 2013, the company's market cap
is $2.126 billion, categorized under mid-cap.
CYS Investments was in a tight situation during the last half of 2012; but
2013 holds a promise to bring back to the dividend yielding mortgage REITs
their glory days, thanks to the dividend tax increase. REITs are expected to
become attractive investments in 2013 and the years to come. Now that all
dividends will be taxed at the same rate, REITs will now be at the same level
with other investments in terms of tax rates, and may even be on the stronger
end due to their high dividends.
^[(1)] ^ The Full Research Report on CYS Investments, Inc. - including full
detailed breakdown, analyst ratings and price targets - is available to
download free of charge at: [
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