- Second Quarter Dividend of $0.25 for an 11.7% yield.
- Dynex Capital is small REIT, but positioned to maintain double-digit return.
- Company offers DRIP with a 3% discount.
- Stock price appreciation expected in second half of 2014.
On June 16, 2014 the Board of Directors of Dynex Capital, Inc. (NYSE:DX) announced that the company declared dividends on shares of its common and preferred stock for the second quarter of 2014. Common shares will receive $0.25 and the Series A (DXPRA), which is cumulative and redeemable preferred will receive its regular 8.50% of $0.53125 and Series B ( DXPRB), is also cumulative and redeemable preferred will receive its regular 7.625 of $0.4765625, with an ex-dividend date of July 1, 2014 and pay date of July 15, 2014.
Dynex Capital released its first quarter report on May 7, 2014, and we would expect the second quarter results to be published the first week of August 2014. The dividend will be paid prior to the actual numbers for the quarter, but based on the market and current operations, the company is on target for similar numbers to first quarter.
Dynex Capital paid a quarterly dividend of $0.25 last quarter and for 2014, paid $0.29 the first two quarters and $0.27 the second two quarters. The market has remained steady and Dynex has a comfortable niche with $469 million market capitalization. In comparison with other REITs, Dynex is smaller than the huge REITs, like American Capital Agency Corp (AGNC), with a market cap position of $8.3 billion, ARMOUR Residential REIT, Inc., (ARR) with a $1.5 billion market cap, and Western Asset Mortgage Captial, (WMC) a $603 million market cap. A smaller REIT, Dynex has created a sweet position that pays about 11% dividend yield and if you reinvest the dividends, your investment grows above that.
Dynex offers a Dividend Reinvestment and Share Purchase Plan. The plan is open to all investors and there are few minimum investment requirements, but investors can receive up to a 3% discount, at the company's discretion, on purchases of shares through the reinvestment of cash dividends purchased directly from the company under the Plan. The company offers a prospectus on their website here.
One note about the stock price over the last several days. On June 16, when the company announced the dividend, the stock opened at $8.58, and closed at the same. On the 17th, the stock opened at $8.59 and closed at $8.52. On the 18th, the stock opened at $8.55 and closed at $8.57. There was very little movement over the announcement, which indicates that the market was expecting the dividend to remain the same. We will anticipate a slight rise over the next 12 days, leading to July 1 (the ex-dividend date). The norm would be near the dividend of $0.25, and then recede after the ex-date.
We will have to wait until the company releases the numbers for the second quarter (sometime in August), but we are seeing a trend of continued steady profits that could create a stock appreciation across the REIT market as a whole. A 10% stock appreciation by the end of 2014 is plausible and likely to recover from the loss investors suffered in 2013. There is plenty of money in the market to drive the value up, and the second quarter financial reports may be the catalysts to begin the push.
Dynex Capital is a recommended buy and hold for its double-digit dividend and the two bonuses of the DRIP that provides the 3% discount and the anticipated stock price appreciation. Both of these should provide investors with positive returns in 2014 and into 2015.
Disclosure: The author is long DX, AGNC, ARR, WMC. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.