Today, I’m going to tell you about the safest investment you can make — in a sector with government-backed profits generating amazing returns for shareholders…

If you were to invest in this company right now, you could immediately start earning 15.2% on your money. But the real beauty of this investment is that the interest payments get bigger the longer you hold on to it.

For example, readers of Sound Profits who invested in this company in November 2008 when I first told them about this highly unusual opportunity are now getting a 20.1% annual rebate on their investment… plus a huge bonus. (I’ll tell you about that in a moment.)

Those interest payments add up in a hurry, too. If you buy now, I can pretty much guarantee that you’d make your entire principal back in about four and a half years!

Anything from that point forward would be pure profit… frosting on the cake!

I’m NOT talking about the stuff you normally invest in to generate a steady income stream. Stuff like…

  • 2-Year Government Bonds — at a 0.63% interest rate. You could be making 24 times more money with the investment I’m talking about.
  • Money Market and Savings Accounts — at a 1.3% interest rate (for the best ones!). You could be making 11 times more money with the investment I’m recommending.
  • 10-Year Government Bonds — at a 3.0% interest rate. You’d be making five times more with my recommendation.

The rebate you’d get with this type of investment is not only much higher than any CD… or muni bond… or investment-grade corporate bond could offer, it’s also backed by the government.

That makes it almost impossible for you to lose money.

It’s an investment you probably haven’t heard of before…

Wall Street simply doesn’t talk much about it much. I don’t blame them. Why would you invest in one of their bond funds, for example, with returns of 3%-5% a year if you’re lucky, when you could make over 15% annually (plus a bonus).

What is this super-safe, super-profitable investment? Real Estate Investment Trusts, or REITs for short. But they’re very special REITs. In fact, they remind me more of banks than of real estate companies.

And I consider them to be the best banks in the world because making money for them is so very simple. You won’t believe how simple!

Safer and More Profitable Than Big Banks

By law, REITs are required to give shareholders 90% of their profits. In return, Uncle Sam agrees not to tax them. It works out for everybody. These companies make bigger profits because they go untaxed. And shareholders get an automatic 90% of those bigger profits.

But, like I say, the REITs I’m interested in are special. They operate more like banks… but with one important difference.

They don’t take stupid risks.

It’s important not to get these special REITs confused with the Washington Mutuals and Bear Stearns of the world. They invested in all kinds of things that made no sense. But these REITs invest in mortgage securities backed by such government agencies as Freddie Mac and Fannie Mae.

And while the big banks have about a dozen ways to make money (and, thus, a dozen ways to lose it!), these REITs have the most boring strategy in the world…

They borrow at low rates and invest at higher rates.

Once upon a time, all the banks used to follow this formula. I happen to remember those days. Their stocks were some of the safest you could buy. Your grandmother probably owned them.

But then the banks got greedy. And now they are like any other business. A lot has to go right in order for them to make a profit. And when it doesn’t, investors can lose a lot of money.

Not so with these REITs. For them, only ONE SINGLE THING has to go right…

The cost of borrowing money must stay low. That’s it. Not very complicated, is it?

As long as they can borrow money for next to nothing (like they can now), they make a nice return by investing in higher-interest securities…

And you, the shareholder, get to grab 90% of those returns. The REITs get to keep only 10%.

The Perfect Situation for These REITs

If I were the CEO of one of these REITs, I’d be hanging a big picture of Fed chief Ben Bernanke on the wall of my office. And every day, I’d thank him for keeping the Fed rate low. That’s the rate banks can borrow at. That’s also the rate these REITs pay a lot of attention to.

The lower the Fed rate is, the bigger the spread between the rate these REITs borrow at and the earnings they make from their investment.

And right now, that spread is at historical highs. So high that these REITs are in hog heaven — including my favorite, Annaly Capital (NLY).

For Annaly, the interest rate spread is 2.22%. Now that doesn’t sound high, I know. But compared to the 0.6% spread it was getting in mid-2007, it’s REALLY BIG.

Unlike the big banks, Annaly avoided risky investments like the plague and stuck to its strategy of investing only in safe and boring government bonds.

And now it’s reaping the rewards and passing on the fat profits it makes to shareholders. Its dividend is 15.2%. (It just raised it once again last month.) With a dividend rate of 15%-16%, you’d make all your money back from your original investment in less than five years!

Investors are beginning to pick up on this company. In just the last six weeks, shares have gone up by 20%.

But Annaly’s price is still very low. It’s priced at only five times more than earnings. Companies that are priced at 10 times earnings are considered inexpensive. This company is one of the best bargains out there.

And get this. Annaly generates more cash flow in one year ($11.5 billion) than its entire worth of $10.1 billion. I don’t think I’ve ever seen this before in my 25 years of experience. Usually, annual cash flow is at least one-tenth of a company’s total worth. So this is pretty amazing.

I love Annaly’s numbers. Invest now and you’d be coming in at a great time — catching Annaly when it’s going for a huge discount.

Since recommending Annaly to my Sound Profits readers a little more than a year and a half ago, it is up by 64.8%. But this company has plenty of room left to grow. As long as the Fed keeps interest rates low (because, remember, the lower they are the bigger the profit spread for Annaly), Annaly will be making steady and safe income and passing on 90% of its fat profits to you.

If Annaly’s price-to-earnings ratio (P/E) just goes from 5.4 to a still low 6.4, that’s a 15% gain. And with investors already starting to flock to this company, your total profit by Christmas could be at least 30%. And you get a 15% dividend to boot. What’s not to like?

And Annaly isn’t the only undervalued company in my Sound Profits portfolio. It’s filled with proven money-makers — like the Alaskan oil company that has shown my readers 51.1% gains in a little more than a year and a half. Its P/E is only 11.6. Or the Chinese company that has gained 36% since I recommended it. Its P/E is only 8.5. And my recommendation in the current issue of Sound Profits has a P/E of 3.9. Now that’s ridiculous.

Andrew Gordon

Andrew Gordon is a former editorial contributor for Early To Rise Investor’s Edition. He has 20 years of experience working in infrastructure and environmental projects around the world. When he wasn’t traveling, he taught marketing and finance courses at the state university of Maryland. Mr. Gordon has authored several books for McGraw Hill and other publishing companies on energy markets, global countertrade practices and the hot growth sectors of China and Russia. He is also a top-rated speaker at financial conferences.