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Ryan Brennan

 
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  • Is American Capital Agency Really This Cheap? [View article]
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    "However, June 7th was less than two weeks ago. Book value certainly has not fluctuated massively in this short time, which included two weekends of no trading."
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    There has been a lot of movement in the Agency MBS space in the past couple of weeks, so assuming that there has not been movement in book value based purely on time is flawed.

    For some very rough math, AGNC's 30 yr MBS portfolio has an average coupon of 3.70%. In their presentation that you link to you can see where FNMA prices were as of 6/7. Using the Fannie prices around the 3.70% coupon, there has been some major price movement that would have a very large negative impact to AGNC's book value:

    FNMA 3.50 - 6/7 price 103.17 - 6/21 price 100.72 (100-23)
    FNMA 4.00 - 6/7 price 105.27 - 6/21 price 103.50 (103-16)
    FNMA 4.50 - 6/7 price 106.72 - 6/21 price 105.72 (105-23)

    Prices can be found on Mortgage News Daily: http://bit.ly/17a2wZL

    These impact of these price changes is also multiplied because of the leverage that AGNC (and all mREITs) use.

    I am long the mREIT space (including AGNC). It's important that investors have an understanding of what they are getting themselves into and, in terms of mREITs, what price changes in the underlying securities will do to book value even over a short period of time.

    One final note - MTGE is a hybrid mREIT, not a commercial mREIT.
    Jun 21 03:23 PM | 4 Likes Like |Link to Comment
  • 5 Mortgage REIT Preferreds To Consider, Part V: Armour Residential [View article]
    Annaly traded ex-div yesterday (3/27), which is one of the reasons that they were down. ARMOUR has been slowly climbing back since announcing their dividend cut.
    Mar 28 11:50 AM | Likes Like |Link to Comment
  • 5 Mortgage REIT Preferreds To Consider, Part IV: American Capital Agency [View article]
    NIM is very important, though I think it's important to look at all of the different metrics together.
    Mar 28 08:29 AM | Likes Like |Link to Comment
  • 5 New Preferreds To Replace Recently Called Securities [View article]
    Thanks Revelation 14:6 - For this article I was specifically focusing on new issues. In terms of GS-D, it is also a non-cumulative preferred. The difference between it and the ones mentioned in this article is the fact that it is a variable rate preferred while the above are all fixed rate.

    GS-D pays the minimum of 3 Month LIBOR plus 0.67%, or 4.00%. It closed yesterday at 23.25, which gives it a current yield of 4.30% (quarterly coupon of $0.25).

    Compare that with GS-I (Goldman's latest preferred), which has a fixed coupon of 5.95% and closed yesterday at $25.20. The position has a current yield of 5.90% (quarterly coupon is $0.371875).

    The big difference between these two positions is that with the variable rate coupon you are protected when rates rise (although 3ML must be 3.35% for it to make an impact on your coupon and it's currently at 0.28%). The thing to figure out is is the 1.60% that you give up in current yield worth that protection? Looking at it another way, is it worth taking a current yield that is 27% lower for that protection?
    Mar 28 08:23 AM | Likes Like |Link to Comment
  • 5 New Preferreds To Replace Recently Called Securities [View article]
    In terms of a company not making a preferred dividend payment, it's not nearly as simple as a company simply choosing to pay or not. Missing a dividend payment is a severe sign of financial distress and not a game that companies will play (especially financial companies). Additionally, companies cannot pay a dividend on their common stock without first paying the dividend on their preferred stocks. This means that a if a company wants to play the game of skipping preferred dividend payments, they will have to suspend their common dividend as well - a huge PR problem for an industry trying to climb out of the financial crisis.

    It's also important to look at the capitalization ratios of the issuing company and ratings on the preferreds themselves. There's a reason that the higher coupon preferreds are all non-investment grade and that Wells is the only investment grade preferred on the list (PRH is as well, but it is exchange traded debt - higher in the capital structure so not an apples-to-apples rating comparison).

    You are correct in stating that if a non-cumulative preferred stock misses a dividend payment they are not obligated to pay you the missed dividend at a later date, whereas a cumulative preferred stock only defers and does not forfeit this payment.
    Mar 27 06:03 PM | Likes Like |Link to Comment
  • 5 New Preferreds To Replace Recently Called Securities [View article]
    When I started writing about preferred stocks on SA it felt very redundant to highlight the risks of investing in preferreds in every article (though it did seem necessary because they are unique investments). To avoid this redundancy, I wrote an article titled "Navigating the Risks of Buying Bank Preferred Stocks". In that article there is a section titled "Risk of Missing Dividend Payments". That section discusses, among other things, the difference between cumulative and non-cumulative preferreds.

    I link to that article at the end of every article that I write about preferred stocks. The link isn't obscurely buried - it's at the end of the article and titled "Risks of Preferreds".

    Here's the link again since you seem to have skipped over it: http://seekingalpha.co...

    Obviously this needs to be highlighted in a different manner because you skipped over it to blast some all caps comments and take a few unwarranted swings. I would appreciate some help from you in how to highlight this better for readers.
    Mar 27 05:41 PM | Likes Like |Link to Comment
  • 5 New Preferreds To Replace Recently Called Securities [View article]
    bsorge - I will do my best, though since I focus a lot on bank preferreds (and new bank preferreds are not cumulative), it's going to be tough to come up with a solid list. The exchange-traded debt is all going to be cumulative, so PRH (for example) will be cumulative. A couple recent exchange-traded debt new issues are:
    PRH - Prudential Financial - 5.70%
    SGZA - Selective Insurance Group - 5.875%
    GEH - General Electric Capital Corp - 4.875%
    ALL-B - Allstate Corp - 5.10% (trades ex-div 3/27. It's traded up since its IPO but could trade at an interesting level tomorrow morning).
    Mar 26 06:31 PM | Likes Like |Link to Comment
  • 5 New Preferreds To Replace Recently Called Securities [View article]
    Thanks poclerk. It's a REIT, so different beast then the banks mentioned above. DDR is a traditional REIT (not to be confused with an mREIT) that owns retail properties.

    DDR-K is cumulative. Dividends are not QDI, so they are not eligible for the 15% tax rate.

    Overall, definitely worth taking a closer look at.
    Mar 26 06:23 PM | Likes Like |Link to Comment
  • 5 New Preferreds To Replace Recently Called Securities [View article]
    The preferred ETFs and closed end funds are always worth taking a look at, especially if you do not want the hassle of tracking many individual positions and companies. You lose the QDI tax treatment (so no 15% tax rate) but you gain diversity (and possibly sleep).

    You do gain exposure to companies/industries that you otherwise may not want, so that's always something to be aware of as well.

    In terms of JPI, you are getting a lot of exposure to non-cumulative preferreds. Many others have mentioned their aversion to them, so I figured I would highlight their prevalence in this (and other Preferred ETF) fund(s). The fund also uses leverage, so there are additional risks there.

    The Nuveen website has a good overview of the fund, including all of the holdings on a line-by-line basis:
    http://bit.ly/15Rue8y

    The NAV of the fund (as of 3/25) is $25.68, so you are picking it up at a discount. The share price has remained fairly steady since inception in July 2012 while NAV has grown from $23.88 at the IPO.

    Hope this helps! Let me know if you have any other questions.
    Mar 26 06:10 PM | Likes Like |Link to Comment
  • 5 New Preferreds To Replace Recently Called Securities [View article]
    Uain53 - Absolutely. Although the price dropping below par does not necessarily mean that a dividend payment is being missed. The position could trade Ex-Div and if it was trading close enough to par it could move below par. This happened with MWO today.

    Tim - It is definitely a sign of severe distress, which is why (when looking at bank preferreds) it's important to take a look at the capitalization ratios of the bank to have a better understanding of any levels of distress they may be facing.
    Mar 26 05:44 PM | Likes Like |Link to Comment
  • Buy Morgan Stanley's TruPS Before They Trade Ex-Div [View article]
    The ex-div date has to do with how long it takes to settle a position. In the US, it takes 3 days to settle a stock trade, so the ex-div date is going to be 3 business days before the record date.
    Mar 26 05:39 PM | Likes Like |Link to Comment
  • Buy Morgan Stanley's TruPS Before They Trade Ex-Div [View article]
    Since these positions trade with accrued dividend, the prices drop on the ex-div date. If you were to purchase at that time, you would be buying at a discount from the previous day. If they are trading near par and then drop below par, that could be the protection you are looking for. This happened with MWO today, as it closed yesterday at 25.29 and then opened today at 24.93.

    The point that I try to make in the article is that these securities at the levels discussed would have a theoretical cost basis below par after the ex-div date. With MWO, for example, your purchase price would have been $25.21 and the dividend is $0.359375. If it is announced after you purchase the position that the security is going to be called at $25.00 on the pay date, you would receive $25.00 plus your dividend of $0.359375 (total: $25.359375). Your cost was $25.21, so even if the downside happens and the security is called, you still net $0.1493750 per share.

    *the above example does not include brokerage fees for purchasing the security.
    Mar 26 05:37 PM | Likes Like |Link to Comment
  • 6 mREIT Dividends To Consider And Avoid This Week [View article]
    Just to make sure everyone has the correct numbers, the final special dividend is 0.049 shares of SBY for every TWO share, which is ~$0.93 equivalent (SBY closed at 19.03 today). The announcement came out after the market closed today:

    http://bit.ly/14k3CR1
    Mar 25 06:56 PM | 1 Like Like |Link to Comment
  • Citi's New Offering Is A Great Deal [View article]
    GS-I has an annual coupon of $1.4875 ($25 x 5.95%).
    $1.75 would be a 7.00% coupon
    Mar 25 06:12 PM | Likes Like |Link to Comment
  • Citi's New Offering Is A Great Deal [View article]
    I completely agree that when making an investment decision you need to be as emotionally removed from the situation as possible. If you feel you have issues with the larger banks (Citi, GS, Wells, BAC, JPM, etc.), either invest in solid smaller banks or don't play in the banking sector at all - anger clouding your investing will certainly lead to bad investment decisions.
    Mar 25 06:07 PM | Likes Like |Link to Comment
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