Mortgage REITs Report Positive Dividend Announcements And A Stock Repurchase Plan

by: Zvi Bar

So far this week, multiple mortgage REITs (“mREITs”) announced information pertaining to their upcoming dividends and one surprising stock repurchase plan. The information provided is generally positive for those particular companies and the quarterly dividend prospects for other mREITs that are yet to announce.

On Monday, December 11, 2011, American Capital Agency (NASDAQ:AGNC) declared a cash dividend of $1.40 per share for the fourth quarter 2011. The dividend is payable on January 27, 2012, to common shareholders of record as of December 22, 2011, with an ex-dividend date of December 20, 2011. AGNC has now maintained this $1.40 quarterly dividend for 10 straight quarters.

On Tuesday, December 12, 2011, Capstead Mortgage Corporation (NYSE:CMO) announced it will pay a fourth quarter dividend of $0.43 per common share on January 20, 2012, to stockholders of record as of December 30, 2011. This is a one-cent reduction from CMO’s dividend last quarter, and five cents below its dividend for the second quarter of 2011. Below are CMO’s recent quarterly dividends:

  • 4Q Just announced: $0.43
  • 3Q 9/28/11: $0.44
  • 2Q 6/28/11: $0.48
  • 1Q 3/29/11: $0.41
  • 4Q 12/29/10: $0.39
  • 3Q 9/28/10: $0.26
  • 2Q 6/28/10: $0.36
  • 1Q 3/29/10: $0.50

Though CMO did lower its dividend this quarter, this minimal reduction has not at least immediately spooked shareholders, many of whom may have been anticipating a reduction and pleased it was slight. The dividend is also four cents higher than the one CMO paid during the fourth quarter of 2010. The mREIT industry in its entirety is likely pleased with these announced dividends and the prospects for the many coming announcements, though CMO did validate that some quarter-over-quarter reductions should be expected.

On Wednesday, Tuesday, December 13, 2011, Invesco Mortgage Capital Inc. (NYSE:IVR) announced that it plans to repurchase up to seven million shares of its common stock. Usually, IVR and other mREITs would expand their float through secondary offerings, and this somewhat the opposite. For example, Iso far in 2011, IVR has sold over 60 million shares through secondary offerings. AGNC also completed several secondaries this year, including a 37 million share secondary to start November.

American Capital Agency and Capstead Mortgage are both agency mREITS, like Annaly (NYSE:NLY) and hatteras Financial (NYSE:HTS). Agency mREITs only hold securities with a U.S. agency backing. Invesco Mortgage Capital is a non-agency or hybrid mREIT, similar to Chimera (NYSE:CIM) and MFA Financial (NYSE:MFA). These hybrid type mREITs hold securities without an agency backing, though many also hold large positions in agency paper. Recent performance rates for these mREIT's shares can be found here.

Without the agency guarantee, non-agency debt tends to pay a higher interest rate and offer these REITs a larger spread than agency REITs. Of course, this higher return comes with default risk, which is significant in the present market.

Last week, Invesco Mortgage Capital announced its quarterly dividend would be 65 cents, 15 cents below the previous quarter and 32 cents below the dividend for the fourth quarter of 2010. Shares purchased and held by the corporation itself do not receive a dividend, reducing the burden of paying that dividend. Therefore, this repurchase plan should help IVR buoy its dividend. Most other mREITs are expected to announce their dividends within the next two weeks.

Disclosure: I am long CIM, NLY.

Disclaimer: This article is intended to be informative, and should not be construed as personalized advice as it does not take into account your specific situation or objectives.