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Cash King
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I was first interested in stocks and investing while in High School. With my first job I saved a significant portion of that and put it into various instruments i.e. Roth IRA and stocks mostly. I started college for Business Administration and continued teaching myself principles of investing... More
  • Dynex Capital Is The Best Buy In The MREIT Sector 7 comments
    Jul 20, 2014 3:20 AM | about stocks: AGNC, MTGE, NLY, DX


    The mREITs have had a relatively quiet ride regarding rates over the last six months; however, their share prices have climbed a little bit with a little more clarity on the future of rates and the QE reductions.

    Over the last 52 weeks Annaly Capital Management, Inc. (NYSE:NLY) is down 7.1%, American Capital Agency Corp. (NASDAQ:AGNC) is up 4.8%, American Capital Mortgage Investment (NASDAQ:MTGE) is up 6.4%, and Dynex Capital Inc. (NYSE:DX) is down 16%.

    I believe Dynex Capital Inc is best positioned to handle the impending rate hikes and likely to be the most stabile out of all four that I follow closely. I also believe the greatest upside and gains are to be found in DX.

    I'll look a little more closely at the two that are down over the last 52 weeks, Annaly Capital and Dynex Capital.

    The Facts




    BV 1st Quarter end



    BV 4th Quarter end



    Closing price July 18, 2014



    Spread 1st Quarter



    Spread 4th Quarter



    1st Qtr Est. Taxable inc(Core Earnings)



    12-month FFO (thru 1st Qtr)

    -4.71 Bil

    208.8 Mil (Q4)

    12-month dividends (thru 1st Qtr)

    1.50 Bil

    69.3 Mil (Q4)

    1st Quarter dividend



    1st Qtr CPR



    4th Qtr CPR



    (Source: Cash King)

    Both, a matter of fact, all four mREITs are at a discount to their Book Value as of their last quarter end. Also, since rates have performed rather favorably over the last 3 to 6 months all have likely posted further gains to book value since last quarter.

    I consider all four a buy in my portfolio but DX remains the best buy. Between NLY and DX, DX increased their spread in the last quarter while NLY's fell. Also, Taxable Income/Core Earnings for DX covered their dividend while NLY's fell short. CPR fell in both cases as well. Where my huge bullishness in DX comes from is when I recently updated my annual numbers with DX. Take a look at these trends with DX:

































    FCF payout








    (Source: Cash King)

    As can be seen here DX has managed to increase Operating Cash Flow, increase Free Cash Flow per share, and decrease the Free Cash Flow payout ratio year after year since at least 2008.

    Going Forward

    I believe DX will face an uphill climb to continue this trend in 2014 due to the horrible environment that entailed with the mREITs towards the end of 2013. Some of this filtered into DX's Q1 report. My $200 Million projection for Operating Cash Flow is only a 4% decrease from last year and easily attainable. DX in Q1 produced just shy of $50 Million so all they need to do is maintain that. Any increase means they may be able to still post an increase for the year. Due to their decreased dividend their FCF payout continues to decrease further making it easier and more likely they will raise dividends at some point in the near future.

    Despite a couple of dividend drops they still have a 5yr DGR of a little over 6%. This is far superior to most of the other mREITs. Lastly and often not talked about is DX has been around since 1987, longer than NLY, so they have a long track record of success.

    Disclosure: The author is long DX, MTGE, AGNC, NLY, MORL. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

    Stocks: AGNC, MTGE, NLY, DX
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Comments (7)
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  • RoseNose
    , contributor
    Comments (10895) | Send Message
    Thanks CK,
    Glad to read a positive article on DX and know it has a bright future. I am also Long AGNC, MTGE & NLY.
    20 Jul 2014, 09:28 AM Reply Like
  • Cash King
    , contributor
    Comments (1129) | Send Message
    Author’s reply » Thanks Rose. We'll see in the next few weeks when they report but I think there will be some good surprises.
    20 Jul 2014, 10:13 AM Reply Like
  • Miz Magic DiviDogs
    , contributor
    Comments (5151) | Send Message
    Thanks, Cash. What Rose said. :)


    I had it for a while and sold it, but I've kept my eye on it. Still want to get back into it one of these days.


    Also long AGNC & MTGE along with various others. :)


    20 Jul 2014, 06:16 PM Reply Like
  • Cash King
    , contributor
    Comments (1129) | Send Message
    Author’s reply » Miz,


    Thanks. I'm long AGNC & MTGE as well. I just happen to like DX a little better right now. I think they are good at performing but also staying under the radar so people don't realize how good they are.
    22 Jul 2014, 09:58 PM Reply Like
  • Miz Magic DiviDogs
    , contributor
    Comments (5151) | Send Message
    You might be right. I love stocks that fly under the radar, I've found some real gems that way. :)


    23 Jul 2014, 08:37 PM Reply Like
  • Tucker Leppa
    , contributor
    Comments (339) | Send Message
    DX > NLY
    Therefore DX > mREIT industry


    That logic doesn't really stack up for me as I haven't been a big supporter of investing in NLY for a long time, and I continue to believe that (NYSE:CYS) is the best mREIT.
    21 Jul 2014, 09:07 PM Reply Like
  • Cash King
    , contributor
    Comments (1129) | Send Message
    Author’s reply » Tucker,


    Thanks for stopping by. I'm not sure I even believe DX will outperform the rest of the mREITs because as I'm sure you know there is oftentimes a lot of emotion in investing and DX seems to remain under the radar as opposed to many of the others. My point with this was they have the most steady and growing financials out of the other ones and I think that gives them a clear advantage and it is clear from their financials they will do well. I'm sure NLY, CYS and the others will do well as well but it is a little harder to say with certainty based off of the up and down in their financials. I don't follow CYS so I can't speak about them specifically. I guess I believe DX has the best risk vs reward ratio because of their history and financials.
    22 Jul 2014, 10:02 PM Reply Like
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