On June 17, 2014, American Capital Agency Corp. (AGNC) announced that its Board of Directors declared a cash dividend of $0.65 per share for the second quarter, 2014. The dividend is payable on July 28, 2014, to common shareholders of record as of June 30, 2014, with an ex-dividend date of June 26, 2014.
This represents the 4 quarter in a row that AGNC has paid a $0.65 quarterly dividend. The company's investment portfolio has a solid mix of residential mortgage pass-through securities and collateralized mortgage obligations for which the principal and interest payments are guaranteed by government-sponsored entities, such as the Federal National Mortgage Association, Fannie Mae (OTCQB:FNMA) and the Federal Home Loan Mortgage Corporation, Freddie Mac (OTCQB:FMCC), or by a U.S. Government agency. The company also invests in agency debenture securities issued by Freddie Mac, Fannie Mae or the Federal Home Loan Bank.
AGNC has created a healthy hedge position against the risk of increasing interest rates. The Federal Reserve has consistently stated its intent to keep interest rates low for all of 2014 and into 2015; there will come a time when the Federal Reserve allows interest rates to rise. With the hedge position AGNC holds, they will offset the effects in the near and midterm.
American Capital, Ltd. (ACAS) is a publicly-traded private equity firm and global asset manager. American Capital manages publicly traded American Capital Agency Corp., with approximately $9 billion of net book value. American Capital. Ltd. Also manages American Capital Mortgage Investment Corp. (MTGE) with approximately $1 billion of net book value and American Capital Senior Floating, Ltd. (ACSF) with approximately $151 million of net book value. American Capital has a large investment advisory team that has been successful in multiple portfolios over the history of these funds.
AGNC has a book value of $24.51 and will open on June 23 2014, at 23.73. The stock price after the first quarter dividend closed at $21.26 and has steadily climbed during the 90 days. Since the announcement on June 17, the stock price has not jumped, assessing investors expected this dividend and few are jumping in or out.
We anticipate a normal drop in the stock price after the ex-dividend date on June 26, but do not expect a large drop, as the stock price may stabilize in the high $22 to $23 range until the second quarter financial report is released. If they earned above or near the $0.65 dividend, we could expect the stock price to climb above $25 throughout the summer. The key number to look for is the new book price to see if it has risen over the last 90 days.
We continue to be bullish on AGNC. This company has created a profitable portfolio in the market with low interest rates and a strong hedge position. The company continues to make profits and pass to their investors. The dividend yield has dropped to near 11%, but that is due to the stock price appreciation, as the dividend has remained the same for the last 4 quarters.
We recommend a buy and hold, and since the stock price has not jumped in the last several days, a buy now could net you the dividend and not take the drop in stock price after the ex-dividend date. If you choose to reinvest the dividends, you could up the 11% return on your investment each quarter.
Disclosure: The author is long AGNC. 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.