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After another ugly day for the mREIT sector sector (REM -1%), CYS Investments (CYS) gives the...

After another ugly day for the mREIT sector sector (REM -1%), CYS Investments (CYS) gives the sellers something to think about, hiking its quarterly dividend to $0.34/share from $0.32. Shares rose 3.6% in AH trade. Should the dividend be sustained (there's good reason to think it won't be) American Capital Agency's 2.9% decline yesterday leaves it yielding north of 20%. The shares hit a 4-year price low.
Comments (14)
  • Joe Eifrid
    , contributor
    Comments (336) | Send Message
     
    "American Capital Agency's 2.9% decline yesterday leaves it yielding north of 20%"

     

    ...as like looking into the rear view mirror at past distributions mean anything in this environment.
    11 Jun 2013, 08:26 AM Reply Like
  • jpmist
    , contributor
    Comments (312) | Send Message
     
    Before Fed day a few weeks ago, MORL was yielding 20%. Based on it's recent 3 month's payout, MORL now sells sporting a 27% yield.

     

    So the market is pricing about a 17% drop in mREIT dividends, which I view as extremely unlikely.

     

    I like the rear view mirror, it tells me just how undervalued MORL is.
    11 Jun 2013, 08:45 AM Reply Like
  • Dividend Living
    , contributor
    Comments (251) | Send Message
     
    Seems a dividend hike can't even lift CYS out of the red today. How long will this sale on mREITs last? They have to have better than expected news, and the expectations keep lowering. I think dividends will cause a little stir, but book values are what people want to see, and that's 2 months away.
    11 Jun 2013, 11:15 AM Reply Like
  • jpmist
    , contributor
    Comments (312) | Send Message
     
    If it's any comfort, it's not only a sale on mREITs. Everything I follow that pays dividends are getting killed. Muni's, BDC's, Nat Gas pipeline's. It's been a few years since I've seen the market this irrational. Fed Tapering talk is to blame, IMHO, so we'll have to wait until the next Fed meeting for Bernake to try to walk his comment's back and calm the waters.

     

    I take some small comfort from the fact that unlike equities, the mREITs can't fall to zero. If liquidated, they'd pay out more than they currently trade for.
    11 Jun 2013, 02:30 PM Reply Like
  • Dividend Living
    , contributor
    Comments (251) | Send Message
     
    Perhaps today's drop was the BOJ not extending stimulus and also pricing in a dividend cut from the major mREITs. I saw FNMA 3.5 30 years go up to 103-12 from 103-08, mortgage rate go down to 4.06 from 4.08, both of which should have meant a slightly green day for mREITs.
    11 Jun 2013, 03:33 PM Reply Like
  • Dividends#1
    , contributor
    Comments (2233) | Send Message
     
    jpmist,

     

    AGNC can't go bankrupt? Implied GSE guarantee? I am ignorant about this.

     

    No one else has mentioned this. I believe AGNC says in their prospectus an investor can lose all their principle? I will have too look that up, I am not sure.

     

    Your thoughts please.

     

    Very Long AGNC.
    12 Jun 2013, 06:02 AM Reply Like
  • jpmist
    , contributor
    Comments (312) | Send Message
     
    "AGNC can't go bankrupt? Implied GSE guarantee? I am ignorant about this. No one else has mentioned this. I believe AGNC says in their prospectus an investor can lose all their principle? I will have too look that up, I am not sure."

     

    I'm no accountant, and I'm going by comments I've read here, but my understanding is that the book value of mREITs is exactly that, the amount of what their portfolio is worth. As a shareholder, you own that. In AGNC's case they own only Agency MBS, FannieMae, FreddieMac paper so that if all those mortgages in the agency MBS go bust the US Treasury would pay out 100% to cover it. The agency MBS can't go to zero, so neither can the book value.

     

    The "an investor can lose all their principle" is certainly possible, but I think it's mostly lawyer boilerplate. Lacking blatant fraud, it's hard to see an event that would render all their MBS worthless. All of the mREITs hedge against adverse interest rates changes, but what's happening here is simply a mass exodus out of bonds and anything remotely resembling them.

     

    The business model that mREITs rely on for earnings is still very much intact and with the spread between borrowing costs and what MBS's pay out widening I think there is a good chance the next quarter dividend will be level with last quarter or possibly even higher. That's not to say that these guys might not have gotten too clever with their hedges, swaps, TBA's and every other thing I don't completely understand, but hopefully what happened in Q1 was a wake-up call for them that they'd be smart enough to prepare for this quarter.

     

    This recent reaction to the Fed announcing virtually nothing new and the non-voting Fed governors saying nothing new has been baffling to me. It's tough to look at my portfolio day to day and see the routine 3% daily drop, but I'm optimistic that most of the weak hands and fast momentum traders are out.

     

    What I"ve done to reassure myself is to go back and look how Annaly survived similar long spikes in 2003 as well as the 2008 Lehman collapse. In 2003, Annaly had to slash it's dividend one quarter due to a plunge in long rates with an equal spike back up, and increased pre-pays, but the next few quarters the dividend bounced back to where it was and higher. In 2008 when Lehman collapsed, Annaly had no problems getting repo financing since they were offering MBS as colateral and managed to increase their quarterly payouts then as well.

     

    Annaly and AGNC have different investing and hedging techniques here and there, but the broad strokes are the same. They'll be ok.
    12 Jun 2013, 11:45 AM Reply Like
  • Dividend Living
    , contributor
    Comments (251) | Send Message
     
    Another day, another 1-2% loss in mREITs. The price to book values are getting lower than I have ever seen (ARR is at a 32% discount to book!) , but I don't see anyone arguing their book values aren't lower, AGNC's presentation today basically said the BV shock was similar to last quarter. Today's drop I explain by a lack of dividend announcements by AGNC, MTGE, and a drop in the 3.5% FNMA 30 year to 103.156. Thankfully none of the FNMA mortgages are priced lower than 100% on the market, but I wonder if they could be. Then you would be praying for a prepayment so that you could get your 100%. If this goes on much longer, we will see if prices can go below 100%, anyone know if they have before? and if they did, is their any way FNMA would give you your 100% if you asked? My guess is that you would have to just wait till the mortgage is all paid up to get your 100%
    12 Jun 2013, 12:33 PM Reply Like
  • Dividends#1
    , contributor
    Comments (2233) | Send Message
     
    jpmist,

     

    Thank you very much for your insight. I miss your comments about Scott Kennedy's latest articles. Stop by and share some of your excellent comments/thoughts. I follow Scott very closely and he is long term bullish on AGNC.

     

    I am assuming you are Long AGNC as of today?

     

    I have been a little panicky lately, but I am HOLDING and even added lately.

     

    Good luck.
    12 Jun 2013, 05:22 PM Reply Like
  • jpmist
    , contributor
    Comments (312) | Send Message
     
    I follow Scott but I confess I'm too dim to grasp all of his points. Other than the few meager points I've made I don't have much else to offer. Scott is an excellent SA resource, hope he branches out to other mREITs in the future.

     

    I'm long term bullish on mREITs in general because it's a sure thing that the yield spread is going to widen in the next few years. I simply don't know enough to pick one mREIT over another so I have all of them. . .

     

    As far as panic, I see where some mREIT ETF's have hit their 200 day moving average, so surely the bottom is imminent. Bernake hopefully has noticed the havoc his and other Fed governors have wreaked so I'm expecting him to calm the bond market in their next statement.
    12 Jun 2013, 08:37 PM Reply Like
  • Dividends#1
    , contributor
    Comments (2233) | Send Message
     
    jpmist,

     

    You are more knowledgeable then I about MREITS and interest rates.

     

    Please do not shortchange yourself, you have a lot to offer!

     

    I think I have a talent at spotting sharp people, and I have put Scott into that camp. No one is perfect, however I think his knowledge and dedication are superb.

     

    You have added a lot to the discussion, so please stop by and let us know what you are thinking.

     

    I agree with your assessment.

     

    Thanks again.

     

    PS. If I grasp 50% of what Scott has to offer, I am making progress,. And, I know I probably have 1/1000 of his knowledge of MREITS. Luckily, he does his best to simplify the subject for the laymen. Of course we will not understand all of it.

     

    I would love to see you ask him a few questions about things you are not understanding, that you think might be important. It would probably help a lot of others, as you probably understand more then the majority of readers/SA members.
    12 Jun 2013, 11:06 PM Reply Like
  • Javimanic
    , contributor
    Comments (232) | Send Message
     
    time is on our side. Get Reit with life. ;)
    11 Jun 2013, 10:32 AM Reply Like
  • 67g8i32
    , contributor
    Comments (200) | Send Message
     
    The only green in the Mreit space today is little ORC.
    11 Jun 2013, 04:09 PM Reply Like
  • Joe Eifrid
    , contributor
    Comments (336) | Send Message
     
    Holey moley! ARR preferreds getting hit!
    12 Jun 2013, 11:53 AM Reply Like
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