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Let's talk about dividends in the mortgage real estate investment trust space. For more on the history of what has happened in this sector, please consult the wealth of information and opinions I have shared in the past. In this article I will provide further evidence as to why Javelin Mortgage (JMI) is set to break out while its competitors are being left behind. JMI has a lot going for it, but in this piece we will focus on JMI's dividend policy relative my two largest holdings in the sector.

Annaly's Dividend Announcement

The most recent dividend announcement by Annaly Capital (NLY), my largest mREIT holding, revealed yet another cut. The stock didn't selloff because a cut was priced in. This cut lowers the reward for holding the stock as NLY's dividend will now be $0.30, or $1.20 on an annualized basis. At the current price of $10.22 it yields 11.7%. This $0.30 dividend is payable January 31, 2014, to common shareholders of record on December 31, 2013. The ex-dividend date is December 27, 2013. I've said it before and will say it again. Although I continue to hold NLY and believe in the company, we know it distributes dividends based on its estimate of taxable earnings per common share, not GAAP earnings. Taxable and GAAP earnings nearly always differ. And yet, the company historically does not release its estimates of taxable income quarter to quarter, and we are left guessing when we get the GAAP earnings.

American Capital Agency: Another Disappointing Cut

As my readers are aware, my second largest holding in the space is American Capital Agency (AGNC). It's been a rough year accumulating this stock on the way down. I have told you that I do have a decent cost basis at $22.20 per share because of my pyramid style buying approach, but am in the hole. As we head into 2014, I continue to have faith in Gary Kain and the management team at AGNC. That said, another cut has dropped the yield further. AGNC declared a cash dividend of $0.65 per share for the fourth quarter 2013. This was a cut of $0.15 from the last payout of $0.80. The dividend is payable on January 28, 2014 to common shareholders of record as of December 31, 2013, with an ex-dividend date of December 27, 2013. With this cut, the stock pays $2.60 on an annualized basis, and at $20.00 a share drops the yield from 16% down to 13%. And then, there is JMI.

Javelin Mortgage; Not Cuts Here And None Projected For 2014.

There is a reason I continue to push JMI. It just is outperforming. Take a look at Figure 1. While NLY and AGNC continue to bleed, JMI is up over 10% in the last three months. Further, the stock just crossed back over $13.00. I suspect the stock will approach $14.00 in early 2014. Why? Because take a look at table 1. JMI announced its dividend policy and will pay $0.15 monthly for 2014, or $1.80 on an annualized basis. At $13.00 a share, the stock is yielding 13.8% per share. I should also point out that as a REIT, in order to maintain this favorable tax status, JMI is required to timely distribute 90% of its ordinary REIT taxable income. Accordingly, JMI may increase the amount of one or more announced dividends before the applicable record date or may declare supplemental dividends, if necessary to meet this tax requirement. This is indeed possible. In fairness, should the market sour, cuts are also possible.

Figure 1. Percentage Change In The Share Prices Of Javelin Mortgage, Annaly Capital And American Capital Agency, Last Three Months.


(Click to enlarge)

This yield is sustainable as JMI's earnings have been sufficient to cover the dividend. Further, their buyback policy has helped ensure earnings will cover the dividend. In fact, As a result of the shares already repurchased this quarter and the repurchase from Bulldog, JMI will have spent over $15 million on share repurchases. This is key, as the company has repurchased approximately 9% of the float. While NLY and AGNC struggle to hold $10.00 and $20.00 respectively, JMI is now breaking out.

Table 1. Javelin Mortgage's Announced Dividend Schedule, 2014.

Month

Dividend

Ex Dividend Date

Payment Date

January 2014

$0.15

January 15, 2014

January 30, 2014

February 2014

$0.15

February 14, 2014

February 27, 2014

March 2104

$0.15

March 17, 2104

March 28, 2104

April 2014

$0.15

April 15, 2014

April 29, 2014

May 2014

$0.15

May 15, 2014

May 29, 2014

June 2014

$0.15

June 16, 2014

June 27, 2014

July 2014

$0.15

July 15, 2014

July 30, 2014

August 2014

$0.15

August 15, 2014

August 29, 2014

September 2014

$0.15

September 15, 2014

September 29, 2014

October 2014

$0.15

October 15, 2014

October 30, 2014

November 2014

$0.15

November 17, 2014

November 26, 2014

December 2014

$0.15

December 15, 2014

December 30, 2014

Conclusion

While NLY and AGNC seem to be stabilizing, JMI has had a lot of positive momentum. Its dividend is sustainable, especially with the buyback policy. The dividend announcement for 2014, especially compared to NLY and AGNC's cuts, demonstrate that JMI is rising as a serious contender in this space. Now that shares are above $13.00, the stock is breaking out. It has technical momentum, fundamental strength and a sizable, but sustainable yield. With shares rebounding sharply, I suspect shares will rise above $14.00 in early 2014 and could easily surpass $15.00 with a positive fourth quarter report. I currently rate NLY and AGNC as holds (though can't fault anyone who buys at these levels). At this time JMI is a conviction buy for me in the mREIT space.

Source: 3 Major mREIT Dividends Announced; 1 Conviction Buy And 2 Holds