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ETRACS Monthly Pay 2x Leveraged Mortgage REIT ETN (NYSEARCA:MORL) declared a dividend of $0.0620 with an ex-date of February 10, 2014 payable February 21, 2014. This is a decline from the $0.0869 "small month" dividend paid in December 2013.

As I explained in this article 30% Yielding MORL, MORT And The mREITs: A Real World Application And Test Of Modern Portfolio Theory, MORL pays widely varying dividends each month since most of the mREITs in the basket pay dividends quarterly on various schedules. During any three-month period, usually all of the components would have paid their dividends.

The January, April, October and July "big month" MORL dividends are much larger than the "small month" dividends paid in the other months since about 80% of the portfolio pays quarterly, typically with ex-dates in the last month of the quarter and payment dates in the first month of the next quarter.

I had assumed that the $0.20 special dividend that Chimera Investment Corp (NYSE:CIM) paid on January 31, 2014 but had an ex-date of January 6, 2014 would be included in the February distribution. However, it does not look like that was the case. I had also indicated that there were caveats to my forecast. MORL passes through the dividends based solely of the dividends paid by the mREITs that comprise the portfolio. However, they may have some discretion on how they treat certain timing issues.

The MORL January 2014 dividend of $0.8072 was above the $0.7938 "big month" dividend paid in October 2013. That appeared odd since Annaly Capital (NYSE:NLY), American Capital Agency Corp. (NASDAQ:AGNC), Two Harbors Investment Corp. (NYSE:TWO), MFA Financial Inc. (NYSE:MFA), Hatteras Financial Corp. (NYSE:HTS), Amour Residential REIT (NYSE:ARR), Cypress Sharpridge Investments (NYSE:CYS), American Capital Mortgage (NASDAQ:MTGE) and Anworth Mortgage Asset Corp (NYSE:ANH) all reduced their dividends from the amounts paid three months ago. All of the other mREITs with ex-dates in December did not change their dividends.

One explanation for why the January MORL dividend was above the October 2013 dividend is that some of the mREITs that go ex-dividend in December 2013 did not go ex-dividend in September 2013 and thus may not have been included in the October 2013 MORL big dividend. MFA and Dynex Capital Inc (NYSE:DX) went ex-dividend in October 2013, HTS went ex-dividend before September 2013. This suggested that unless some of the component mREITs in MORL increase their dividends we could see lower dividends in coming months. This could be offset however, from increase in MORL's net asset value from an improvement in the mREIT market. As I explained in: MORL's Net Asset Value Rises - Implications For The Dividends the monthly dividends are a function of MORL's net asset value.

At some point in the future there should be some beneficial impact from the reinvestment of higher yielding mortgage securities entering the mREITs portfolios. Newly issued mortgage-backed securities usually settle about two months after the purchase date. Each month an mREIT generally receives principal payments on its mortgages of about 3/4 of a percent of the outstanding balance. As I indicated in my article:Federal Reserve Actually Propping up Interest Rates: What this means for mREITs, higher long-term rates while short-term rates remain low actually increases the spread income of agency mREITs.

The annualized dividends based on the most recent three-months ending in February 2014 are $3.82. This is a 19.06% simple annualized yield with MORL priced at $20.06. On a monthly compounded basis, the effective annualized yield is 20.8%.

Source: MORL February Dividend Decreases - Now Yielding 20.8% On A Monthly Compounded Basis