Hatteras Maintains Its 90-Cent Quarterly Dividend

| About: Hatteras Financial (HTS)

On June 19, after the markets closed, Hatteras Financial (NYSE:HTS) declared a Q2 dividend of $0.90 per share, which is unchanged compared to last quarter. The dividend will be paid on July 20, 2012, to shareholders of record on June 29, with an ex-dividend date of June 27.

Hatteras has paid 90 cents for the last two quarters, but previously paid one dollar per quarter. See a one year performance chart for HTS with dividends noted:

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When Hatteras last reported its Q1 results, it earned net income of $69.3 million or $0.89 per share, compared with $70.6 million, or $0.92 per share, during the Q4 of 2011 and $0.96 per share during Q1 of 2011. Hatteras buys agency mortgages that are backed by federal agencies. Other well-known agency mREITs include American Capital Agency Corp (NASDAQ:AGNC) and Annaly Financial (NYSE:NLY), both of whom also maintained their Q1 2012 dividends for Q2. All reduced their dividends within the last year.

Hatteras and Annaly will both pay ten cents less this quarter than they did on their dividends for the same quarter in 2011, while AGNC will be paying 15 cents less. On a percentage basis, Annaly reduced its dividend the most year over year (15.38%), followed by AGNC (12%) and then by Hatteras (10%). Last week, Capstead Mortgage (NYSE:CMO), another agency mREIT, cut its dividend from $0.43 to $0.40, but it appears most in the agency only space opted to maintain this quarter.

Last quarter, Hatteras reported that its net interest margin increased to 1.58% during Q1 of 2012 from 1.56% during Q4 of 2011 and 1.64% during Q3 of 2011. Hatteras reported that its weighted average coupon during the first quarter of 2012 was 3.38% , compared with 3.42% during the fourth quarter of 2011, and noted that the reduction was due to lower rates on HTS' new security purchases. During Q3 of 2011, Hatteras a 3.54% weighted average coupon.

Hatteras last stated that its repo debt-to-shareholders' equity ratio, or leverage rate, as of the end of Q1 was 6.2x, down from 7.8x at the end of 2011 and 7.9x at the end of Q3 2011. Hatteras commented that this difference in this leverage rate was largely due to a secondary stock offering that HTS announced on March 26, 2012, or just before the end of the quarter and just after going ex-dividend. This likely means that Hatteras subsequently increased its leverage rate, but such is no certainty.

Given that agency debt has performed exceptionally well during Q2 of 2012, to the extent it has followed U.S. Treasuries, Hatteras' portfolio should have appreciated compared to where it started out the quarter. The more aggressively and quickly Hatteras re-leveraged its portfolio after the secondary, the better it probably performed over the quarter. This performance would show itself in the form of increased book value.

Hatteras stated its book value per share at the end of Q1 was $27.30. Generally, rising interest rates reduce the value of RMBSs, because their value must decline to a rate where their yield will meet the new, higher rate being offered by comparable securities, and reducing rates increase book value. One issue with all agency mREITs is that many of these securities are held and valued at a premium, but several carry with them the potential of being called by the issuer at their lower face value. Nonetheless, the aggregate value of HTS' book should show some material appreciation between Q1 and Q2.

Disclosure: I am long NLY.