Not too much negative can be said regarding CYS Investments (NYSE:CYS) Q2 2014 results. The company had a blowout quarter, posting an impressive book value increase and maintaining its net interest income in line with previous levels. All of this was done while maintaining relatively low leverage of 6.35x, well below many of its peers in the mREIT sector.
The highlight of the quarter has to be the massive increase in CYS' book value, which increased to $10.31 as of June 30, up 6.5% from $9.68 as of March 31. This increase is even more impressive considering that it is AFTER the company declared a $0.32 per share dividend on June 9. Combined, CYS posted a $0.95, or 9.2%, total economic return in Q2, or 37% annualized. This performance is in sharp contrast to what occurred late last year.
If the book value increase was not enough, CYS also had a good quarter in terms of profitability. For the quarter, the company generated $0.33 of core earnings plus drop income. This bodes well for the sustainability of the dividend. As a result, I expect CYS Investments to maintain its quarterly dividend rate at $0.32, implying a forward yield of north of 14%. My price target for CYS is up to its book value of $10.31, representing 15% upside, given that the stock is trading at $9.00 per share as of this writing.
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Disclosure: The author is long CYS. 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.