On August 1, 2014 Western Asset Mortgage Capital Corporation (NYSE: WMC) will release second quarter, 2014's financial results on August 7, 2014. The Company will host a conference call with a live webcast at 12:00 p.m. Eastern Time/9:00 a.m. Pacific Time, to discuss those results and answer questions. The conference call number is 866.235.9914 from the United States, or 412.902.4115 from outside the United States.
Western Asset Mortgage Capital Corporation is a real estate investment trust, or REIT, focused on investing in, financing, and managing primarily Agency Residential mortgage-backed securities. The core investment strategy is focused on Agency RMBS, and the company will opportunistically supplement the portfolio with residential mortgage-backed securities that are not guaranteed by a U.S. Government agency or sponsored entity, commercial mortgage-backed securities and other asset-backed securities. The stated objective is to provide attractive risk-adjusted returns to investors over the long term, primarily through dividends and secondarily through capital appreciation. To achieve this objective, by selectively acquiring a diversified investment portfolio of assets designed to produce attractive returns across a variety of market conditions and economic cycles. A diversified investment portfolio is focused on the relative value of securities within various sectors of the mortgage markets and security selection.
Western Asset is projected to set the dividend near $0.67 again this quarter. Financial results should be similar to first quarter with very little change in the financial markets. The mortgage and REIT market is very competitive and will remain so into the near future.
The Federal Reserve has continued to decrease their purchases of bonds, but has not made any changes that affect the markets. The economy continues a slow steady growth of about 3-4% that will not cause inflation to increase. The home loan market is building steady growth without the assistance of federal programs to stimulate home loans.
The current stock price of Western Asset is $13.61 (open on August 4), with a daily average volume of 695 thousand shares traded per day. The last dividend paid for first quarter was $0.67 per share, and we anticipate near the same this quarter. The yield would be over 19%, which is one of the highest yields for REITs.
The stock price of Western Asset has increased more than the dividend paid over each of the last quarters. For first quarter, 2014, the stock price dropped to a low on January 23, 2014 to $14.65, then just prior to the ex-dividend date climbed to a high on March 19 of $17.05. The ex-dividend date was March 27, 2014, where the dividend paid was $0.67. The stock price fell to $13.50 on May 16, and began its quarter's journey up to $15.13 on June 23. Once again the dividend paid was $0.67. This current quarter the stock price fell after the ex-dividend date to a low of $13.51 on August 1, and will begin its climb again, where we anticipate it will climb over the $15 mark.
The benefit we are describing is an opportunity to buy now near $13.60 and ride the stock price up to near $15.00. Sell just prior to the ex-dividend date near the end of August and in less than 30 days you could earn an anticipated, $1.40 per share. $1.40 profit on the purchase price of $13.60 represents a profit of just over 10% in 30 days. This opportunity comes along only 4 times a year on this stock. If you are tracking multiple stocks in this cycle, you could turn your money several times a quarter.
The pattern analysis we are showing is an opportunity to buy at the low, ride the stock price up to just prior to the ex-dividend date. This is where many less-informed investors drive the price up. The smart investor has bought the low and willing to sell at this point, which is the high price for the stock this quarter. Many investors claim they want to buy low and sell high, but never figure it out.
Other stocks I track that provide similar opportunities include American Capital Agency Corp. (AGNC), Northern Tier Energy Inc. (NTI), SandRidge Mississippian Trust II (SDR). These stocks also have a larger quarterly cycle where the stock price decreases more than just the drop of the dividend after the ex-dividend date. Then over the quarter regains the value leading up to the ex-dividend date. AGNC's stock price was $23.99 as a high just prior to the ex-dividend date on June 26, 2014, and dropped to $22.57 less than two weeks later on July 7. That is a $1.42 drop, and the stock price now has climbed to $23.26, even after this last week's beat down of the market. NTI's stock price was at a high of $29.60 on May 14 2014, the day prior to the ex-dividend date. The low on May 15 was $26.80, with a close of $27.03. The close was $2.57 lower and the dividend was $0.77. SDR has a similar drop as the stock was trading at the open on May 9 2014 at $8.59 and on May 13 the ex-dividend date, the dividend of $0.559 was paid. On May 15, the stock price dropped to a low of $7.13, and closed at $7.23, demonstrating that always taking the dividend isn't the best way to get the best rate of return on your money.
CVR Refining (CVRR) was on this list, but due to a fire at the refinery, has been pulled. It has a sell recommendation at this time.
I track several monthly stocks like ARMOUR Residential REIT, (ARR), Orchid Island Capital (ORC), as these stocks do not fluctuate enough in the month from investors buying and selling to drive the price up and down. These stocks are very profitable for providing monthly cash flow with yields over 13%.
Disclosure: The author is long WMC, AGNC, ARR, ORC, NTI, SDR. 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.