Western Asset Mortgage Capital Corporation (NYSE:WMC) is a gem in the sea of investments. It is a new REIT, just started in 2012 and has paid a dividend just 7 times. Its last 4 dividends have an aggregate total of $5.10, which is over a 33% return based on the stock price of $15.20 (January 28, 2014 midday trading). The Market Cap is $362 million is externally managed by Western Asset Management Company and wholly-owned subsidiary of Legg Mason, Inc. (NYSE:LM). Legg Mason is a large investment firm on Wall Street that provides investment management and related services to institutional and individual clients, company-sponsored mutual funds and other pooled investment vehicles. Legg Mason has a market cap of $5.3 billion. Western Asset Mortgage Capital Corporation and Western Asset Management Company have a wealth of information and market knowledge to support its financial operations.
The company's website state the core investment strategy will be focused on Agency RMBS, our Manager's expertise in related investment disciplines such as non-Agency RMBS, CMBS and ABS provides our Manager with both (1) valuable investment insights to our RMBS investment selection and strategy and (2) flexibility to invest in assets other than Agency RMBS opportunistically as market conditions warrant.
On December 19, 2013, Western Asset announced the dividend for 4Q, 2013 of $2.35. On January 28, 2014, Western Asset announced the cash and stock components of the declared fourth quarter/year-end dividend. For stockholders who elected to receive the entire $2.35 per share dividend in stock, each stockholder will receive 0.1590 shares in newly issued common stock for each common share that they held as of the dividend date of record, December 30, 2013. For stockholders who elected to receive the dividend in cash, which was the default election for stockholders who did not make an election, each stockholder will receive $0.9159 per share in cash and 0.0970 shares in newly issued common stock for each common share that they held as of the dividend record date, December 30, 2013. The stock conversion price used to determine the amount of shares payable was based on the average closing price of the stock for the three day period from January 21 to January 23, 2014, which was $14.78.
I want to point out that the base price the company used was after the stock price dropped from the ex-dividend date of $17.22 (at the close on December 26, 2013), and the date-of-record, (December 30, 2013) $14.91, to the stated average of $14.78. The price dropped $2.44, which allows the repurchase of more shares of stock. Automatic reinvestment of dividends is a great tool to increase your gains when the company pays a dividend. You can read my previous articles on Western Asset here.
As a result of the total amount of dividend being paid in stock, the company will issue 2,548,848 additional common shares, leading to total outstanding common shares of 26,853,351 as of January 28, 2014.
Over the next 60 days leading up to the next dividend announcement, the stock price should recover near the $17.00 mark. Over the last 3 quarters the stock price appreciates as investors bid up the price due to the high dividend yield. The 3 previous quarter's dividends were as see in the table. These yields are annualized on each month's dividend except the 4Q, which is the accumulation of the year.
The day after the ex-dividend date the stock price dropped, only to rise through the next quarter as expectations drive the stock price due to the high yield. Investors will ask if there are any market factors that will affect the company's operations or net results; and as of now, there are no indicators that any changes in the market or changes in interest rate.
Based on the economy and mortgage activity, the next dividend announcement in March and paid in April should return to near $1.00. Once again, based on the current operations of the company's portfolio and activity in the market, there are no factors that will change WMC's current operations or business model. With a financial powerhouse like Legg Mason and Western Asset Management Company providing information and management to the operations, we anticipate positive results for the rest of 2014.
The Chairwoman of the Federal Reserve, Janet Yellen, has stated in December, 2013 that the Feds plan to keep interest rates low for all of 2014, which provides stability for REIT companies in the financial markets. On January 29, 2014, the Feds again reduced the amount of monthly assets to $65 billion. That is down from $75 billion in January 2014, which is down from $85 billion each month in 2013.
Now is a great time to buy into Western Asset Mortgage Capital Corporation to take advantage of the stock appreciation over the next 60 days, and the dividend that should continue to return in the range of 16-25%.
Disclosure: I am long WMC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.