Seeking Alpha

American Capital +1.3% after reporting a big Q2

  • Net spread and dollar roll income of $0.87 per share compares $0.71 in Q1, and to the $0.65 dividend.
  • Book value per share of $26.26 up 7.2% from June 30 book value of $24.49. Today's close of $23.69 is a 9.8% discount to book. Dividend plus boost in book value translates to 9.9% economic ROE for Q2.
  • CPR of 9% up 200 basis points from Q1.
  • Net interest spread of 1.84% up 25 basis points from Q1.
  • Average "at risk" leverage of 7.1x vs. 7.2x in Q1.
  • CIO Kain takes a victory lap: "Our results this quarter were bolstered by several important strategic decisions ... Most important was our decision to maintain our leverage as we believed the supply and demand outlook for agency MBS was very positive despite the tapering of Fed purchases."
  • Conference call tomorrow at 11 ET
  • AGNC +1.3% AH
  • Previously: American Capital Agency beats by $0.19
Comments (22)
  • Bingy77
    , contributor
    Comments (144) | Send Message
     
    Good quarter, however, only $0.04 of undistributed taxable income, doesn't look good for next quarter's dividend.
    28 Jul, 04:25 PM Reply Like
  • Mike Maher
    , contributor
    Comments (2616) | Send Message
     
    There's a comment in there about the undistributed income:

     

    "As of June 30, 2014, the Company had approximately $16 million of estimated undistributed taxable income ("UTI"), or $0.04 per common share, net of dividends declared. UTI excludes the Company's remaining prior year non-deductible capital losses of $(1.4) billion, or $(3.89) per common share, as of June 30, 2014, which may be carried forward and applied against future net capital gains through 2018."

     

    But yes, I am also surprised that the number got that low.
    28 Jul, 04:34 PM Reply Like
  • garrylindsay
    , contributor
    Comments (31) | Send Message
     
    So AGNC had a good quarter and will be passing none of it on as dividends to shareholders! Nice!
    28 Jul, 06:36 PM Reply Like
  • William Packer
    , contributor
    Comments (418) | Send Message
     
    The company doesn't care about the UTI, it will keep paying dividends based on core + drop income. Dividend could go up actually.
    28 Jul, 05:38 PM Reply Like
  • Bingy77
    , contributor
    Comments (144) | Send Message
     
    $0.28 of estimated taxable income vs dividend of $0.65 dividend and no UTI.

     

    The only way the dividend could go up is if they sold all of their MBS at gains. They need capital gains to recognize the $3.89.
    28 Jul, 05:52 PM Reply Like
  • BDHPlayer
    , contributor
    Comments (119) | Send Message
     
    Loss carryforward means that future cap gains are tax free until carryover is used up.
    28 Jul, 05:59 PM Reply Like
  • Rob1492
    , contributor
    Comments (362) | Send Message
     
    William I agree with you. Core plus drop income more than exceeds dividend! I still would not rush to see a dividend increase yet. They moved out of 15 years into more 30 yr MBS this quarter which increased the spread income. I could see a move in the other direction coming again as we get closer to the Fed raising rates
    28 Jul, 06:39 PM Reply Like
  • xxavatarxx
    , contributor
    Comments (2615) | Send Message
     
    The TBA income is very sporadic and not reliable quarter to quarter.
    It's not time for a dividend increase from that.
    This quarter just happened to be particularly good on their TBA front because of the MBS action this quarter.

     

    This is their past 4 quarters worth. Two are negative.
    138 (Million)
    48
    (5)
    (12)
    28 Jul, 06:50 PM Reply Like
  • pakman14
    , contributor
    Comment (1) | Send Message
     
    There are also significant unrealized capital gains that they can close out and provide additional income....I.e. Investments in other REITS.
    28 Jul, 07:14 PM Reply Like
  • Rob1492
    , contributor
    Comments (362) | Send Message
     
    XXavatar... the TBA position is a strategy in terms of leverage... they can go long or short with it... if they go short then the TBA income will be negative... but you have to look at is as part of the whole portfolio... core plus drop income because they own less total MBS (thus core income is less) because of the degree that they are long in their TBA position. In fact when you look at their at risk leverage which includes their TBA position it actually was a bit less than last quarter.
    28 Jul, 07:41 PM Reply Like
  • William Packer
    , contributor
    Comments (418) | Send Message
     
    Bingy, they collect drop income from the TBA roll and core income. Core income + drop income covered the dividend and left an extra 0.20 some cents per share left over. If you have doubts, please ask the question to Gary tomorrow on the conference call.
    28 Jul, 09:28 PM Reply Like
  • William Packer
    , contributor
    Comments (418) | Send Message
     
    Rob, we will get a better picture on the rate environment by the end of this week. I am looking at GDP and non farm payrolls to make a decision on where rates might go. I took down the short treasury futures hedge today. I have just the mtge and calls.
    28 Jul, 09:41 PM Reply Like
  • Albert Alfonso
    , contributor
    Comments (1657) | Send Message
     
    Excellent quarter for (NASDAQ:AGNC).
    28 Jul, 05:52 PM Reply Like
  • garrylindsay
    , contributor
    Comments (31) | Send Message
     
    If stock price or dividend does not go up, then good quarter is, good for who? Oh yes, Cain and his Ferrari dealership?
    28 Jul, 06:38 PM Reply Like
  • William Packer
    , contributor
    Comments (418) | Send Message
     
    Garrylindsay, the stock price will likely go up significantly on the better than expected earnings. The dividend can be taken up, or not but then the excess income is being added to the book value. Higher book values will equate to a higher stock price and ultimately higher dividends.
    28 Jul, 09:32 PM Reply Like
  • crazty4tennis
    , contributor
    Comments (545) | Send Message
     
    Thank you for your explanation. I was concerned if AGNC was going to pay the next quarter dividend.
    29 Jul, 03:59 PM Reply Like
  • Patrick Harden
    , contributor
    Comments (429) | Send Message
     
    AGNC is wisely taking advantage of the capital gains tax treatment for tax purposes to use up an otherwise worthless net capital loss carryforward. AGNC may (and I think it will) continue distributing at the current level of $0.65/share for the rest of 2014. The earnings release noted that a portion of 2014 dividends are likely to be characterized as a return of capital.
    28 Jul, 10:18 PM Reply Like
  • DHL-2
    , contributor
    Comments (223) | Send Message
     
    The elephant in the room is what will AGNC stock and BV do when the Fed starts raising short term rates? If we do not see an increase in dividends now, when will we?
    29 Jul, 06:09 AM Reply Like
  • garrylindsay
    , contributor
    Comments (31) | Send Message
     
    Exactly, if the next quarter is a bad one and this one realizes nothing for shareholders, then a good and bad quarter instead of being net neutral is net negative for shareholders!
    29 Jul, 11:56 AM Reply Like
  • Rob1492
    , contributor
    Comments (362) | Send Message
     
    DHL-2

     

    After the Fed raises it's rates and the rates restabilize AGNC will increase leverage as well as their percentage of 30 year mortgage and might even decrease hedging these will all lead to an increase in dividends. Also it is expected that when rates rise the interest rate spread will increase

     

    Rob
    29 Jul, 07:26 AM Reply Like
  • garrylindsay
    , contributor
    Comments (31) | Send Message
     
    All those that bought AGNC this morning, after earnings last night are learning the hard way about Wall St. trading! The stock is down on the day!
    29 Jul, 11:59 AM Reply Like
  • crazty4tennis
    , contributor
    Comments (545) | Send Message
     
    Purchased the stock two weeks ago and am wondering if AGNC will be paying the dividend to shareholders. Otherwise, I may sell my shares. Thanks for the thesis.
    29 Jul, 04:00 PM Reply Like
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