American Capital Agency Corp. (AGNC) was drifting lower Wednesday night, down about 3% after the announcement of a 50 million share offering. While these offerings have been occurring pretty frequently since the company came public, this most recent offering is the first since the company announced its buyback program in late 2012. Under the terms of that program, management has stated it would buy back shares if they were trading at a discount to book value. While this was the case for a brief period of time in the last few months of 2012, shares are once again above the most recently reported book value, which was reported Feb 7th as $31.64. Given that shares are again at a premium to book value, AGNC is back to business as usual, selling more shares to expand the business.
As I have detailed in the past, the dip provided after share offerings in AGNC have been opportunities for investors to get into the name, for either long term positions, or trades. In addition to that article, which showed that AGNC was higher one month later after most of its 2010 offerings, it's helpful to look at how AGNC traded after its offerings in 2011 and 2012:
- On March 21st, 2011 AGNC announced an offering of 28 million shares, with an underwriter's option for another 4.2 million. Shares had closed at $29.10 on March 21st, and finished the next day at $28.29. One month later, on April 21th, shares closed at $28.78. Two months later, on May 20th, shares closed at $29.97, or up 5.9% since the offering.
- On June 22, 2011 AGNC announced an offering of 43.2 million shares, with an underwriter's option for another 6.48 million. Shares closed June 23rd at $28.64. One month later, on July 22nd, shares closed at $29.68. Two months later, on August 23rd, shares closed at $28.94, or up 1.0% since the offering.
- On October 26, 2011 AGNC announced an offering of 37 million shares, with an underwriter's option for another 5.55 million. Shares closed Oct 26 at $28.65, and the next day at $27.54. One month later, on November 25th, shares closed at $27.76. Two months later, on December 27, shares closed at $28.37, or up 3.0% since the offering.
- On March 7th, 2012 AGNC announced an offering of 62 million shares, with an underwriter's option for another 9.15 million. Shares had closed at $30.27 on March 7th, and finished the next day at $29.35. One month later, on April 9th, shares closed at $30.08. Two months later, on May 8th, shares closed at $31.52, or up 7.4% since the offering.
- On July 17th, the company announced an offering of 32 million shares, with an underwriter's option for 4.8 million shares. AGNC had closed at July 17th at $35.29, and finished the next day at $33.92. One month later, August 20th, shares closed at $34.05, and were trading at $36.40 two months later, on September 18th, again up 7.3%.
There are a few things that are important to note. First, shares collapsed pretty quickly after that September 2012 high, and the buyback was announced at the end of October. Second, the drops in the share price on the announced offerings have gotten smaller over the years, as investors have gotten used to the offerings, and the potential to trade the shares in the short term has been diminished. It's not a sure thing that shares would be meaningfully higher one month later than in 2010 or early 2011. However, even if you had bought the July 2012 offering around $34, you've collected $2.50 in dividends ($1.25 x 2), so you are about even on the purchase, depending on where shares close Thursday, though this is worse than the roughly 10% return of the Dow or S&P 500 since that time.
So what does this mean? American Capital Agency has been a great investment since its IPO, and has, in my opinion, the best management team in the mREIT space. With shares trading right around book value, and yielding 15.8%, I don't think you can go wrong owning the shares. However, the big 4-5% discounts from the offerings, that had been very easily tradeable, appear to be something of the past. What is certain is that long term investors should either add to positions or hold, and that no one should be selling on this news. This isn't a bad thing, it's a cost of doing business.
Disclosure: I am long AGNC.
Additional disclosure: May initiate a long call position in the next 72 hours