ARMOUR Residential (ARR) is a Real Estate Investment Trust (REIT). It has major investment interests in fixed rate, adjustable rate and hybrid adjustable rate residential mortgage-backed securities that are issued and guaranteed either by US Government agencies or its affiliated sponsors. ARMOUR is a massive REIT business with a market capitalization of nearly $1 billion and an average trading volume of more than $6.25 million. Sound performance and impressive growth in the last financial year have allowed the stock to increase its cash flow and stretch revenue and growth margins.
With the start of the new year, ARMOUR continues to display strong signs of growth with positive upward movement on the stock during the first fiscal quarter. This upward trend has been triggered mainly by favorable market conditions that have encouraged positive investor sentiment and aggressive trading. Consequently, the trading price of the stock is currently safely poised at $6.83 after climbing up to a 52-week high of $7.8 in the first quarter. The fact that the stock has gained considerably after plummeting to nearly $5 a share in the last quarter of 2011 has reinforced the trust of investors in the upward movement of this stock.
I believe that the stock has the potential to meet its estimates and surpass its target trading price of $7.30 by the end of the second fiscal quarter. The stock seems even more promising when we consider the fact that it has a negative beta of -0.21. This means that the stock has the capacity to perform inversely against the predominant forces prevalent in the market. This can explain why unfavorable investor sentiment and restricted or sluggish market activity has historically helped the stock perform better than its traditional rivals.
This year, ARMOUR's stock performance has been impressive thus far, maintaining its dividend history by paying large dividends. The company has recently announced a monthly cash dividend rate of $0.10 per share on Company Common Stock for the second quarter. This currently makes REITs an attractive and viable investment option in the fixed income market, even amidst predominantly unfavorable conditions in the real estate market.
ARMOUR seems to have taken all the right steps and made the right decisions ever since the start of this financial year. With the start of March, the company declared that it had priced an underwritten public offering of more than 30 million common stock shares. The firm has additionally allowed the purchase of over 4.6 million additional common stock shares.
ARMOUR has maintained an impressive and "investor-friendly" dividend history over the years. The current dividend payout ratio of the stock is a staggering 17.6%, which easily ranks among the best in the industry. Moreover, ARMOUR's payout ratio narrowly surpasses that of major competitors American Capital Agency (AGNC), which has a yield of more than 17%. However, the fact that American Capital trades at a much higher share price of almost $30 cannot be sidelined and must also be taken into account. These factors prove that ARMOUR is the much safer investment option with the market-highest dividend yield and greater prospects for growth at a trading price of just $7.
Capstead Mortgage (CMO) has been among the major competitors of ARMOUR in the real estate investment trust industry. It has an impressive market capitalization of nearly $1.2 billion and manages an average trading volume of nearly $850 million. The trading price of the stock is currently poised at a little below $13, although it recorded a 52-week high trading price of almost $14 earlier in the year. However, investor sentiment for Capstead has been predominantly unfavorable owing to the fact that the stock plummeted to as low as $10 a few months back due to market uncertainty.
Although the stock has recovered well since its collapse, investors have been more prudent in investing their money in it. Capstead has a price to earnings ratio of 7.41 and pays its investors more than $0.4 in dividends on earnings per share of $1.75. However, even with a higher share trading price and earnings per share, the stock has a dividend yield of around 13.25% which is much lower than ARMOUR's.
Annaly Capital Management (NLY) is among the bigger players in the REIT industry with a massive market capitalization of more than $15 billion that easily overshadows that of its competitors. Moreover, Annaly has an average trading volume of nearly $13.5 million, which in itself is a testament of the huge market share and high cash flow that the stock enjoys. After climbing up to an impressive $18.8 per share, the trading price of the stock collapsed like a house of cards, plummeting down to nearly $14 amidst market uncertainty, lost investor sentiment and sluggish market trading. Nevertheless, the stock has managed to make a great comeback and is currently trading at around $15.6.
However, even with impressive financial indicators, the stock's performance this year has been mediocre, just managing to progress head to head with its major competitors. Although Annaly has a price to earnings ratio of 48.10, the stock pays $0.55 in dividends against earnings per share of only $0.32. This means that the stock has relied heavily on it reserves to meet its commitments of paying timely dividends. This can be seen as a negative performance factor for the business.
MFA Financial's (MFA) performance indicators in the last five fiscal quarters have been unimpressive. Although the stock is currently trading at a little above $7, sluggish market trading and unfavorable investor sentiment in the first fiscal quarter of this month forced the stock down to an all-time low of $6. Moreover, at a low trading price, the stock has a low dividend yield of around 13.4%, which is significantly low when compared with that of ARMOUR.
However, investors have been quick to notice that at a price to earnings ratio of nearly 8 and earnings per share of $0.90, MFA pays $0.24 per share in dividends. This may be the deciding factor in the stock's performance for the coming months. However, looking at the financial data of the last three fiscal quarters, I believe that ARMOUR is better poised for growth and is a more stable and lucrative investment option.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.