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Capture 8.9% Yields with an Investment in MMA
By Carla Pasternak
Editor, High-Yield Investing
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Municipal Mortgage & Equity (MMA), or MuniMae for short, is similar to a mortgage REIT. The firm finances developers who build multi-family and low-income housing by investing in tax-exempt municipal bonds. The company also charges fees in exchange for structuring tax-advantaged, low-income housing loan agreements.

Like a REIT, the company distributes at least 80% of its taxable income to shareholders, which helps explain its stunning yield of 8.9%. Furthermore, the tax-exempt portion of MuniMae's profits (coming from tax-exempt municipal bond interest income) is passed on to shareholders. Last year, about 80% of the dividend was tax-free, although that percentage is likely to shrink as the firm's fee-based business grows.

Earnings have slowed recently as the spread between MuniMae's funding costs and the interest income earned from its municipal bonds has narrowed. However, the company has been expanding its investment portfolio and loan services through a series of acquisitions. As a result, earnings are expected to grow at a steady +5% clip for the next five years.

Action to Take: This stock would actually benefit from rising interest rates, as higher mortgage rates would force more developers to seek lower, tax-exempt financing like MuniMae's. However, if interest rates remain relatively flat, then the company's business will likely grow at a slower clip. With its rich dividend yield and tax-free feature, the stock is compelling, particularly for investors in the top 35% tax bracket.

Important Note: The above article was merely a small excerpt from a recent issue of our premium, income-oriented investing newsletter -- High-Yield Investing. In each issue of that newsletter, editor Carla Pasternak delivers a host of other investing ideas and tips designed to help you earn steady gains and above-average income from your portfolio. To receive your copy of our most recent High-Yield Investing newsletter, as well as other guidance similar to this every month, you'll need to register for this separate publication. If you're not already a High-Yield Investing subscriber and you'd like to learn more about this publication, then please visit the following link:
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