After going ex-dividend Monday, shares of American Capital Agency Corp (AGNC) were falling further after hours on news the company will be offering 27,000,000 shares of stock. Underwriters will have the possibility to sell an additional 4,050,000 shares to cover any overallotments. Investors who have held AGNC for a few quarters should have seen this coming since it is the 4th large equity offering since September. However, looking at the market response to previous offerings, investors might want to participate in this secondary. Here's a quick look at the last three offerings and the market reaction:
On September 28, 2010, AGNC priced a public offering of 11.5 million shares of stock at $26, raising $285 million. Shares closed at $26.89 that day, and were approaching $29 one month later.
On December 9, 2010, AGNC raised $219 million by selling 8 million shares. Shares closed at $28.64 that day, and closed at $29.59 one month later.
On January 13, 2011, AGNC raised $625 million after selling 23.4 million shares at $28. It closed that day at $28.64, and was trading at $29.55 one month later.
While shareholders should never like being diluted, it makes sense for AGNC to keep issuing shares to expand its holdings of securities given that shares trade at a premium to book value, which was last reported being $24.24 on February 8th. The fact that shares continue to march higher, even with the dilution, is a testament to the strength of the company's management American Capital (ACAS), and the 19% yield. If you purchased shares on the September offering at $26, you will have received one $1.40 dividend already, and will be due the next $1.40 dividend April 27th. That amounts to $2.80 in dividends, as well as about $2.50 in stock appreciation, depending on where the new offering prices, for a total return of $5.30, or 21.5% .
I do not expect the stock to run much above the $33-$35 range given the book value on the shares. However, the company has consistently paid the current $1.40 dividend for 7 quarters and has paid out $14.66 since its formation. The incredibly high yield makes AGNC a winner, and these equity offerings have proved to be opportunities to get shares at a discount. The weakness on the open Tuesday will be an opportunity to get a great yielding stock on a dip, and gain access to this massive dividend yield.
Disclosure: I am long AGNC.