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A bull on mortgage REITs, Dividend Master nevertheless unloads American Capital Agency...
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Tuesday, May 22, 2012, 11:36 AM ETA bull on mortgage REITs, Dividend Master nevertheless unloads American Capital Agency (AGNC) and American Capital Mortgage (MTGE). AGNC's and MTGE's share prices tower by about 10% over their book values ($29.06 and $21.78 respectively, as of 3/31). Expect secondaries soon to "monetize the premium."
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AGNC achieves this unique result (know of any other REIT who did that? I don't) because its portfolio of mortgages is dynamically managed.
So this answer is yes, AGNC has certainly acquired/sold securities the impact of which is not reflected in 03/2012's book value.
Interested in how AGNC's performance is achieved? CEO Gary Kain presentation transcript and presentation to Barclays Capital Americas is recommended reading.
AGNC has had a nice growth run.
However, most dividend centered investors, consider
AGNC as a dividend stock even at lower stock prices.
Many of us that own AGNC, bought in at less than 29 dollars.
In my case, less than 25 dollars.
I didn't buy this stock thinking it would appreciate to over 30 dollars,
that was just a bonus of sorts.
The real attractiveness of the stock is its incredibly high dividend.
At one point last year that dividend was $1.40 a quarter per share.
It is presently $1.25 a quarter per share.
That blows away any other place I can find to put my money.
Of course, I don't put all my money in one place, but I have taken
a chance with 8% of the portfolio that is giving me a 14% return.
If the 'shorts' drive down the price, I'll just buy more, until the
situation calls for another strategy.
Of course, by buy-and-hold I don't mean buy-and-forget. Close monitoring of the macro metrics -- rate changes, prepayments, liquidity, Treasury yields, Fed policy -- is essential.
Its not like AGNC is grossly overpriced from its historic range.
This is one of those articles that seems to have a purpose other than the one being stated. We may not know what the ulterior motive is, but we should recognize propaganda when we see it, because we know more about what we own than they purport to know in the article.
32.05 is 10% over 29.06. Historically, most high yield trusts (which pay distributions required by tax law, not dividends) drop twice the amount of their dividend in the days just after ex. At the current level of $1.25 distribution, one would expect the price to drop to $29.55. OMG!!! 1.7% over the quoted 29.06. Which one is Cain going to "monetize" now? Oops. Wait a minute. Do companies recompute book value constantly? Daily? Or just when the quarterly and annual profit and loss statement is computed? OH! Since Cain's stated mission in life is to grow book value, and since three months worth of book value growth will be added to the quoted 29.06, the price could end up briefly below book value. What then would the Master say after they bought shares at the after ex low? "Price is below book!!! Everybody go buy AGNC. Hurry!"
Contributors with names that appear to make them experts reveal themselves as mistaken when they do not know a stock from a trust, or a distribution from a dividend, or the fact that price is consistently bid up by people looking to buy the "dividend" and consistently drops on the ex date by at least the amount of the "dividend," and that causes a sell off which drops the price about another "dividend" worth. The greater the yield/distribution, the greater the appearance of a price drop, and the greater the concern by unit holders who don't know anything about owning trusts.
Misinformation like this negative article adds fuel to the fire to manipulate the unknowing who buy high and sell low, under the misconception they own a dividend stock instead of a distribution yielding trust. Ignore the nay sayers and misdirecting experts, and they will not get what they are attempting to accomplish through owner ignorance.
A normal temporary drop in price of twice the amount of the quarterly distribution would place the price at about $29.55 based on today's close. With a quarterly distribution of $1.25, annualized to $5.00, the yield when purchased at the low would be about 16.92%.
If articles like this one can persuade more owners (like the 6,919 this article was sent to) to sell off, the price could fall below $29.55, and the yield climb correspondingly higher. Since price and yield are inversely proportional, maybe we should all write negative articles and drive the price down, the yield up, and have our money ready during the eleven days beginning on the ex date.
We may not get the same 20% yield as the commenter who bought at 25 (5 divided by 25 = 20% yield) but we shall certainly enjoy the high yield that is coming shortly after June 4. Certainly preparation and planning is 99% of success, and we have time to do both.
Just when I think I understand this stuff...
Actually, if you check, you'll see that AGNC stock, for example, falls consistently by the amount of the dividend when it goes ex. Exactly what you would expect. So there is no arbitrage fat profit to be made there.
The moral: don't just trust a statement because it looks forcefully asserted. Do your home work.
I hope to reinvest in my variety of MReits and other good dividend paying stocks soon - as mkt conditions permit - given the potential severity of the EU crisis and all cash position is looking better and better at this time, just look at today's 05/23 commentaries.
So much for this Qtr's Div being added to the bottomline.
Hopefully I can settle for some overall growth instead.
Don't worry. Sit tight. Anyway, why not hold on for a year and get long-term treatment plus the dividends?
Long mtge, wife arr
btw a nice and recommended - very bullish by Fidelity and others, medi stock with a near 10% div is PDLI for those looking to diversify some. ex-div 06/05 @ 15 cents PS
as always please do your own due diligence. what works for me may not be right for you.
Looking at the world economy -- including the US economy, still the strongest by far -- do we see its heating up in the foreseeable future? For myself, I can't imagine a scenario that will make interest rates pop any time soon. If this is a correct prognosis, then mREITs are a no-brainer.
Or am I missing something?
Ah, management. Ina Drew was a miracle worker for Morgan. Until she wasn't. Hubris is contagious. I hope Gary Kain doesn't catch it.
On your IRA, I assume that even though taxes are deferred they still apply the same way, as to long- and short-term gains. So, my question is, did you hold out for long-term gains treatment, or does it not make much difference to your situation?
Traditional IRA is deferred ordinary income, entered in the top of the front page of the 1040, along with other ordinary income when a distribution is made. Distributions are not capital gains or dividends, but the same as wages, interest, self employment, rental income, or any other unqualified income. Tax rate is determined by the level of total taxable income and filing status. Long and short term does not apply to distributions from Traditional IRA's, but the gains and dividends compound tax free for as long as distribution is not made, at least until Required Minimum Distributions start at age 70-1/2.
Roth IRA distributions are not taxable unless taken out prematurely.
This is why the capital gain scenario is a viable tool for REITs in IRA's. No tax consequences, no long-term/short-term considerations. Since trusts pay out at least 90% of ordinary taxable income, trust distributions are not dividends with tax ceilings like stock qualified dividends. Trust units are not shares of corporate stock. Distributions from trusts are reported on Form K-1, not 1099DIV. Investors in trusts should understand the differences in investments and tax consequences. Just as one would not report a distribution from a bond as long or short term gain or qualified dividend, one does not report trust distributions as long or short tem because they are not qualified for reduced tax rates.
Those who insist it is a poor choice to take capital gain rather than distribution simply have not done their home work, and are discussing the unknown as if they knew. The foundation of their argument is wholly false. Those who do their homework, understand trusts are not stocks, understand distributions are not dividends, understand the tax structure for trusts and IRA's, will continue to make good investment decisions based on facts rather than speculative imaginings. They will grow their portfolios and enjoy their abundance, and likely remain quiet rather than attempt to offer experience to those who resist because they think they already know everything. Learning from the experience of others is the least expensive education, but it requires silent listening. Learning each lesson individually, or repeating the same lesson over and over, expecting a different result, is costly. When suggestions are offered, and experience shared, it is a far better thing to go try it out, paper trade over a period of years in the charts, and figure it out. It is less beneficial to nay say, bad mouth, and display ignorance in writing for all to see. Negatives benefit no one. The power of positive thinking, positive sharing of experience, and honest questions asked from a mind open to receive will benefit all.
Giving up 1/4 of a 16% yield as compared to a capital gain of 8 to 10% per quarter is a choice made by one who comprehends what years of charts can teach.