On Wednesday, June 27, before the markets opened, MFA Financial, Inc. (MFA) declared a cash dividend of $0.23 per share of common stock for the second quarter of 2012. The dividend will be paid on July 31, to stockholders of record on July 13, with an ex-dividend date of July 11.
See a recent performance chart for MFA:
This newly announced dividend is two cents or eight percent below the $0.25 MFA paid out for the second quarter of 2011, and one cent below the Q1 2012 dividend of $0.24. Though this is a reduction compared to its prior quarterly payout and the payout for the same quarter last year, these reductions are less significant than the cuts have been for the dividends of its peers.
MFA is a real estate investment trust (REIT) that invests in residential mortgage-backed securities, or RMBSs. MFA keeps a portfolio of both agency and non-agency RMBSs. MFA, and most mREITs use leverage to amplify the spread between their borrowing costs and the yield of the securities they hold.
Agency RMBSs are believed to have very little credit risk, because they are guaranteed by government sponsored entities, but the leverage plus security type do subject them to interest rate and refinance risk. Non-agency RMBSs are higher yield, but carry with them the far greater risk of borrower default.
Most of the larger mREITs are agency only ones, such as Annaly Capital Management (NLY) and American Capital Agency (AGNC), the two largest mortgage REITs. Their holdings, and the shares of most agency mREITs, trade similarly to Treasuries. Non-agency mortgages trade more like higher risk equities, or possibly junk bonds.
Despite this new dividend cut and the 2-cent overall cut compared to one year ago, MFA's dividend has held up much better than many of its competitors. Several of MFA's hybrid mREIT peers, such as Chimera (CIM) and Invesco Mortgage Capital (IVR), as well as most agency mREITs, have seen their dividends come under pressure over the last year, though most did start off with far higher yields than MFA. Of these companies, though, only CIM and MFA cut their dividends this quarter, with IVR, NLY and AGNC all maintaining their prior payout rates.
All in all Annaly reduced its dividend 15.38 percent compared to last year, while AGNC reduced its dividend 12 percent. Those Agency mREIT cuts are nothing compared to the reductions by MFA's hybrid peers, where Chimera has reduced its dividend by 30.7 percent through the last year, and IVR has reduced its dividend by 32.9 percent.
Compared to these significant hybrid mREIT cuts, and even the slightly higher agency reductions, MFA's eight percent cut compared to last year's payout pales. Of course, investors should note that MFA started out with a far lower yield, though arguably one pitched at a more appropriate level.
Further, investors should note that at the end of 2011, MFA also paid out a special dividend of two cents, in addition to its then 25 cent dividend, which is not being considered in the above-referenced calculations.