Seeking Alpha

Kain focused on buybacks while stock's below book

  • When agency mREITs trade at discounts to book value, it's a lot different than a bank or insurance company trading at a discount, says American Capital Agency (AGNC +1.6%) CIO Gary Kain, speaking at the BofA financial services conference (transcript) (slides). Why? Because the assets held at an agency REIT are fairly easy to mark, and they're easy/liquid to trade. The benefit of selling mortgages and buying back stock is pretty clear.
  • "We stressed on our call that we ... clearly believe that we should be buying back stock in an environment such as this and taking advantage of the liquidity of our assets ... We will continue to pay a lot of attention to the ability to monetize price to book discount," not just at AGNC, but at American Capital Mortgage (MTGE +0.5%).
Comments (9)
  • Positive Concavity
    , contributor
    Comments (163) | Send Message
     
    I'm glad he mentioned this. Seems like such a simple concept.
    13 Nov 2013, 04:12 PM Reply Like
  • Ron Reed
    , contributor
    Comments (304) | Send Message
     
    Well of course, what is better than buying your own stock back at discounted values and then re-issuing stock if more capital is needed at higher than BV. Gosh, AGNC has been doing this for years and it certainly shows in the balance book.
    13 Nov 2013, 04:13 PM Reply Like
  • Positive Concavity
    , contributor
    Comments (163) | Send Message
     
    The point is today, investors do not seem to realize this, hence the discount to BV. Unfortunately for AGNC, they won't be raising capital at a premium for a while.
    13 Nov 2013, 04:19 PM Reply Like
  • Cash King
    , contributor
    Comments (952) | Send Message
     
    Positive Concavity,

     

    You are right that it will take a while to trade at a premium but the more shares they buyback the easier it will be for BV to increase. It's like a vicious cycle but instead a pleasant cycle of feeding on itself. I think a lot of people are clearly missing the phenomenal long term play this could be between the share buybacks at a huge discount and the eventual dividend increases. No wonder all the execs at NLY have been buying shares. I've been scooping up shares like they are going out of style as well. It'll take some patience but I think it'll pay off down the road.
    13 Nov 2013, 11:34 PM Reply Like
  • Ron Reed
    , contributor
    Comments (304) | Send Message
     
    They need to read a little on what they invest in, I realize that mREIT's are rather complicated to the general investor (and many professionals as well). All investors are told time and time again to know what you are investing in and not thinking that (or forgetting that) high returns contain high risk (and often high volatility) is silly. As for the when, well I agree it will be sometime before AGNC and the rest of the mREIT companies get back to BV+ numbers, in the meantime I'll continue accumulation through outright purchase and short puts.
    13 Nov 2013, 04:24 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (9628) | Send Message
     
    Trading 75ยข for $1 bills seems to be an obvious strategy but a lot of people don't get it.
    13 Nov 2013, 05:14 PM Reply Like
  • Ken311
    , contributor
    Comments (126) | Send Message
     
    Here's to hoping that profits from this strategy will lead to a more sustainable dividend...
    13 Nov 2013, 08:03 PM Reply Like
  • Cash King
    , contributor
    Comments (952) | Send Message
     
    Ken,

     

    Buying back shares will help the mREITs get to a more stable dividend and help them raise it down the road. The more shares they buyback the cheaper those dividends are. AGNC bought back 3% of their shares in one quarter. That is phenomenal if done over a couple of years or so. I'm expecting a stable dividend within a quarter or two and if there continues to be a discount to BV I'm expecting a dividend raise next year as they get cheaper and cheaper from the buy backs.
    13 Nov 2013, 11:38 PM Reply Like
  • firstinsnow
    , contributor
    Comments (560) | Send Message
     
    This is just another good example of Mr. Kain's smart
    management and stock holders value is increased when
    stock is repurchased by the issuer.
    Win, win for both parties.
    14 Nov 2013, 07:15 AM Reply Like
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