Seeking Alpha

Mortgage REITs reprice amid hefty dividend cuts

  • The mREIT (REM -1.7%) stocks sink under another wave of hefty dividend cuts overnight, with the sector gorillas Annaly (NLY -2.6%) and American Capital (AGNC -3%) slashing their payouts by 12.5% and 24% respectively. American Capital however, continues buying back its shares at a discount to book value at a fast pace.
  • American Capital's non-agency cousin, American Capital Mortgage (MTGE -1.2%) cut its dividend 12.5%, and also continues to retire stock below book value. Western Asset Mortgage (WMC +0.7%) held the line on its dividend.
  • Other movers include: Chimera (CIM -1.3%), Hatteras (HTS -1.9%), Capstead (CMO -2.2%), Javelin (JMI -3.3%).
  • Relevant ETFs: MORT, MORL.
Comments (17)
  • American Capital continues buying back its shares at a discount to book value at a fast pace.-ok.
    20 Sep 2013, 10:54 AM Reply Like
  • Yes, good use of capital . I dont own the stock but i am pretty close to take some positions in AGNC
    20 Sep 2013, 11:01 AM Reply Like
  • They have a history of issuing new shares when they are 10%+ BV and then purchasing them at -10%+BV. AGNC is well run for this and many other reasons.
    20 Sep 2013, 11:24 AM Reply Like
  • (CMO) is better managed than AGNC
    20 Sep 2013, 12:05 PM Reply Like
  • I think that MTGE is a better buy at the moment. Their dividend cut was lower and they bought back more shares (as % of float), yield is about the same now as that of AGNC.

     

    NAV increase from the MTGE share buy back is probably higher than the dividend cut and that is real profit.
    20 Sep 2013, 11:28 AM Reply Like
  • how important is it for diversity in MREITS? how many would you call diversified? I am on the fence about keeping MITT and AMTG...I currently have AGNC, AMTG,ARR, CYS, JMI, MITT,MTGE, NCT,NYMT,RSO and WMC. is this overkill?
    20 Sep 2013, 11:47 AM Reply Like
  • what is important is diversification of types of exposure to interest rate duration... most of those you listed are about all the same.
    20 Sep 2013, 12:00 PM Reply Like
  • I think it is more a question of how much of your total portfolio (%) is dedicated toward REIT's. Owning all of them is not my style as I prefer to dig a lot and select only a few top players by my metrics. Owning a slew can be seen as a failure to fully understand the companies, however it is a better hedge overall. Owning all of those prevents the failure of one from bringing down the house. You limit your return but also limit the risk. I would limit my holdings to 10% or less if you are unsure of the direction or risk averse and 25% if you are willing to take on more risk. 25% would be the top end of my recommendation for a total portfolio and that is only for those who have a deep understanding of both the REIT sector as well as the complex arena of mortgage finance.
    20 Sep 2013, 11:59 AM Reply Like
  • What is this irrational love affair with (AGNC)?
    20 Sep 2013, 11:59 AM Reply Like
  • It is the most well run agency MREIT out there, the management is well skilled and knows how to run company to profit regardless of the environment. Certainly they move up and down in BV and price, however they continue to profit well in excess of most other investments with lower risk.
    20 Sep 2013, 02:23 PM Reply Like
  • i believe the numbers would show that they are not the most well run, (CMO) far outpaced (AGNC) management. As for the environment... (AGNC) lost 46% of its value from its high to its low. in about 3 months... if that is the standard for good management, i believe i would like that job.
    20 Sep 2013, 02:52 PM Reply Like
  • That is rather funny since CMO followed all the same dips but none of the raises. Holding in the same 25% price to price range and paying only a fraction of the dividend and a 1/10 of the net worth. Overall I think we can all agree that generally the stock price follows the BV. With that being the case CMO has a net of 1.2B and pays about 8% AGNC has 9.2B and pays about 15%. Yes, yes payout changes over time as does stock price but overall those numbers are close. We can sit here and pin prick pick specific data points to counter both, however overall AGNC does a much better job managing the money. The are much more efficient on profit production from capital as well as growth. Its not that CMO is a bad company, but they are nowhere near the team that makes up AGNC and its parent company.
    20 Sep 2013, 05:12 PM Reply Like
  • Ron,
    CMO's dividend has been remarkably stable since Q4 of last year... all the others, including (AGNC) have been steadily cutting their dividends. In addition, AGNC has lost far more book value than CMO... its not even a close comparison. I laid all this out in my analysis:
    http://seekingalpha.co...
    I am not saying AGNC cant be a holding in some ports, especially if you want some exposure to long term rates. But seriously.. the performance this year, CMO is clearly outperforming AGNC.
    22 Sep 2013, 04:53 PM Reply Like
  • Ron, this article posted last night on seeking alpha clearly points out what i was saying before...
    http://seekingalpha.co...
    23 Sep 2013, 08:26 AM Reply Like
  • Ron Reed, Who are the top players by your metrics?
    20 Sep 2013, 03:29 PM Reply Like
  • you'll have to wait until I have time to write the article for that.
    20 Sep 2013, 05:03 PM Reply Like
  • Mreit preferreds pay 7 to 8 %. They are selling near 10% discount to 25 dollar par. Pferreds have to be paid before common. And they can,t reduce div or interest ( exchange traded debt). Is the difference worth the risk btwn pfd and common?
    21 Sep 2013, 03:07 PM Reply Like
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