MFA Mortgage Investments: Buy $1 for 85 cents

| About: MFA Financial, (MFA)

MFA Mortgage Investments (NYSE:MFA) is a mortgage REIT that only invests in Agency MBS (88% of portfolio) and AAA non-agency MBS (12% of portfolio) the remaining assets are cash and other. The shares are trading with a market capitalization $578 million and common book equity of $704 million or 82% of book value. There is a small amount of goodwill on the balance sheet so you're buying the shares at more like 85% of tangible book value.

The current dividend is $0.09 per share and should increase over the next 12 to 18 months but the current yield is attractive at over 5%. Over the last 5 years the shares have traded at a price-to-book of 60% to 150% with an average of just over 100% of book. So on a stand alone basis I believe you can see a 20% total rate of return and if the Federal Reserve was to cut rates you could make up to 60% in the investment. Clearly there are risks but credit is not one of them. The main issue is that they finance themselves with repurchase agreements and this market place is tough right now with a lot of MFA's peers having seen some major margin calls. I feel comfortable with MFA because of the quality of their asset base and their relatively lower leverage ratio of 10:1. This is much lower than Thornburg Mortgage (TMA) which was at 20:1 when they have had to meet significant margin calls.

Disclosure: Author has a long position in MFA

MFA 1-yr chart


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