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A bull on mortgage REITs, Dividend Master nevertheless unloads American Capital Agency...

A bull on mortgage REITs, Dividend Master nevertheless unloads American Capital Agency (AGNC) and American Capital Mortgage (MTGE). AGNC's and MTGE's share prices tower by about 10% over their book values ($29.06 and $21.78 respectively, as of 3/31). Expect secondaries soon to "monetize the premium."
Comments (36)
  • Patrick Harden
    , contributor
    Comments (440) | Send Message
     
    I totally agree. I think investors should consider taking some money off the table - these mREITs have had a nice run. Reallocate to those trading at or slightly below book value.
    22 May 2012, 11:48 AM Reply Like
  • chambe2470
    , contributor
    Comments (9) | Send Message
     
    Can anyone tell me when the secondary is going to be offered?
    22 May 2012, 11:55 AM Reply Like
  • Changi
    , contributor
    Comments (53) | Send Message
     
    Why the heck would you sell AGNC because it's 10% over book value? Why should AGNC not be worth more than book value? AGNC's book value today is probably in the range of $30, and with a probable $1-$1.50 dividend going ex in June, AGNC's current price of $32 looks still very attractive.
    22 May 2012, 12:04 PM Reply Like
  • wexfordva
    , contributor
    Comments (2) | Send Message
     
    How do you arrive at this book value. Have the prices of the underlying securities or mortgages increased and not been "marked to market?" Or has AGNC acquired more securities/mortgages that re not reflected in available information?
    22 May 2012, 12:17 PM Reply Like
  • Changi
    , contributor
    Comments (53) | Send Message
     
    consider AGNC past book values: 12/2009 $22.48, 12/2010 $24.24, 12/2011 $27.71, 03/2012 $29.06.
    AGNC achieves this unique result (know of any other REIT who did that? I don't) because its portfolio of mortgages is dynamically managed.
    So this answer is yes, AGNC has certainly acquired/sold securities the impact of which is not reflected in 03/2012's book value.
    Interested in how AGNC's performance is achieved? CEO Gary Kain presentation transcript and presentation to Barclays Capital Americas is recommended reading.
    22 May 2012, 01:51 PM Reply Like
  • firstinsnow
    , contributor
    Comments (567) | Send Message
     
    I suppose that if you are just 'flipping' stocks that
    AGNC has had a nice growth run.
    However, most dividend centered investors, consider
    AGNC as a dividend stock even at lower stock prices.
    Many of us that own AGNC, bought in at less than 29 dollars.
    In my case, less than 25 dollars.
    I didn't buy this stock thinking it would appreciate to over 30 dollars,
    that was just a bonus of sorts.
    The real attractiveness of the stock is its incredibly high dividend.
    At one point last year that dividend was $1.40 a quarter per share.
    It is presently $1.25 a quarter per share.
    That blows away any other place I can find to put my money.
    Of course, I don't put all my money in one place, but I have taken
    a chance with 8% of the portfolio that is giving me a 14% return.
    If the 'shorts' drive down the price, I'll just buy more, until the
    situation calls for another strategy.
    22 May 2012, 12:26 PM Reply Like
  • Shadow83
    , contributor
    Comments (2) | Send Message
     
    As a retiree, AGNC is a cash cow for day to day living. I bought low and hope to milk this cow for at least another 2 years.
    22 May 2012, 12:32 PM Reply Like
  • mostserene1
    , contributor
    Comments (3360) | Send Message
     
    My hands are sore from milking AGNC. At least I think that's why they're sore (*_*)
    22 May 2012, 04:05 PM Reply Like
  • Jack Rice
    , contributor
    Comments (990) | Send Message
     
    Is this trading advice? Though I hear a lot about trading (and ex-div arbitrage), this stock is buy-and-hold for the dividends. The public is learning about mREITs, with AGNC as leaders, and many have been waiting for an entry point. The current rally comes, I think, from buying at the entry point created by last Thursday's Treasury spook that hit the sector. This rally will not hold if AGNC make their usual post-ex secondary, unless AGNC increase their book and/or dividend. In that case a new value benchmark will be established.

     

    Of course, by buy-and-hold I don't mean buy-and-forget. Close monitoring of the macro metrics -- rate changes, prepayments, liquidity, Treasury yields, Fed policy -- is essential.
    22 May 2012, 12:45 PM Reply Like
  • Rhianni32
    , contributor
    Comments (2079) | Send Message
     
    I find it odd that someone named Dividend Master is trading stocks based on book value especially ones with a beta of 0.47.
    Its not like AGNC is grossly overpriced from its historic range.
    22 May 2012, 01:41 PM Reply Like
  • brettwidenhouse
    , contributor
    Comments (7) | Send Message
     
    Here's my deal. I like the dividend period. If it keeps doing that year after year, the stock price can gyrate all it wants to.
    22 May 2012, 01:54 PM Reply Like
  • Rhianni32
    , contributor
    Comments (2079) | Send Message
     
    Also... AGNC always does a secondary. Virtually every quarter so its not a surprise when the next one happens.It would be a bigger one if they didnt do one.. As changi has pointed out... their book value always rises from their secondaries.
    22 May 2012, 01:59 PM Reply Like
  • rwsmith13
    , contributor
    Comments (26) | Send Message
     
    Dividend Master needs to change his name to Book Value Master!
    22 May 2012, 03:11 PM Reply Like
  • mostserene1
    , contributor
    Comments (3360) | Send Message
     
    Or Day Trader.
    22 May 2012, 04:05 PM Reply Like
  • FrankEllis
    , contributor
    Comments (280) | Send Message
     
    A bull was sent to 6,919. It was apparently acted upon by some, since price dropped after 11:38
    This is one of those articles that seems to have a purpose other than the one being stated. We may not know what the ulterior motive is, but we should recognize propaganda when we see it, because we know more about what we own than they purport to know in the article.
    32.05 is 10% over 29.06. Historically, most high yield trusts (which pay distributions required by tax law, not dividends) drop twice the amount of their dividend in the days just after ex. At the current level of $1.25 distribution, one would expect the price to drop to $29.55. OMG!!! 1.7% over the quoted 29.06. Which one is Cain going to "monetize" now? Oops. Wait a minute. Do companies recompute book value constantly? Daily? Or just when the quarterly and annual profit and loss statement is computed? OH! Since Cain's stated mission in life is to grow book value, and since three months worth of book value growth will be added to the quoted 29.06, the price could end up briefly below book value. What then would the Master say after they bought shares at the after ex low? "Price is below book!!! Everybody go buy AGNC. Hurry!"
    Contributors with names that appear to make them experts reveal themselves as mistaken when they do not know a stock from a trust, or a distribution from a dividend, or the fact that price is consistently bid up by people looking to buy the "dividend" and consistently drops on the ex date by at least the amount of the "dividend," and that causes a sell off which drops the price about another "dividend" worth. The greater the yield/distribution, the greater the appearance of a price drop, and the greater the concern by unit holders who don't know anything about owning trusts.
    Misinformation like this negative article adds fuel to the fire to manipulate the unknowing who buy high and sell low, under the misconception they own a dividend stock instead of a distribution yielding trust. Ignore the nay sayers and misdirecting experts, and they will not get what they are attempting to accomplish through owner ignorance.
    A normal temporary drop in price of twice the amount of the quarterly distribution would place the price at about $29.55 based on today's close. With a quarterly distribution of $1.25, annualized to $5.00, the yield when purchased at the low would be about 16.92%.
    If articles like this one can persuade more owners (like the 6,919 this article was sent to) to sell off, the price could fall below $29.55, and the yield climb correspondingly higher. Since price and yield are inversely proportional, maybe we should all write negative articles and drive the price down, the yield up, and have our money ready during the eleven days beginning on the ex date.
    We may not get the same 20% yield as the commenter who bought at 25 (5 divided by 25 = 20% yield) but we shall certainly enjoy the high yield that is coming shortly after June 4. Certainly preparation and planning is 99% of success, and we have time to do both.
    22 May 2012, 04:53 PM Reply Like
  • RobRay
    , contributor
    Comments (25) | Send Message
     
    FrankEllis: Thanks for the thought-provoking comments. In analyzing the AGNC price chart it appears that the ex-dividend price drop only significantly exceeds the amount of the dividend when a secondary offering occurs. There is not a secondary offering every quarter. I would be surprised if there is a secondary in June since AGNC issued approx sixty million new shares in March.
    23 May 2012, 07:49 AM Reply Like
  • Jack Rice
    , contributor
    Comments (990) | Send Message
     
    I tried to be cute and sell pre-div to buy back post-div. It worked last October but not January. Meanwhile, my long-term meter reset to zero. Bad move. Why would anyone see this as a trading stock, except those with funds to take advantage of the narrow trading range. But then, aren't there plenty of high-beta stocks around to do that with?
    24 May 2012, 07:26 PM Reply Like
  • MashieNiblick
    , contributor
    Comments (65) | Send Message
     
    Something I've always wondered: if mREITs typically fall 2 x distribution the day after going ex, is there a group of traders that follow these companies and short them in advance of the ex date? Or to simplify it, how about just selling all your stock before the ex date adn buying it back after? You'd have given up the distribution, but bought back in at a savings of 2x.
    Just when I think I understand this stuff...
    22 May 2012, 05:31 PM Reply Like
  • Changi
    , contributor
    Comments (53) | Send Message
     
    That's a good point Mashie.
    Actually, if you check, you'll see that AGNC stock, for example, falls consistently by the amount of the dividend when it goes ex. Exactly what you would expect. So there is no arbitrage fat profit to be made there.
    The moral: don't just trust a statement because it looks forcefully asserted. Do your home work.
    23 May 2012, 08:58 AM Reply Like
  • FrankEllis
    , contributor
    Comments (280) | Send Message
     
    The drop is NOT necessarily the day after ex. It may happen all on the ex. AGNC reaches a low as much as eleven days after. Each is different. Nor is the phenomena limited to mREITs. It is related to high yield trusts. A unit of trust worth $30 the day before ex is worth $28.50 plus $1.25 distribution on ex. Same value, but now in two different pockets instead of all in one. The distribution is not recognized by financial sites or brokerage firms, or charts, or computation of yield. So, on ex, suddenly the price SEEMS to have dropped a large amount because of the size of the distribution. Alerts ping those who set them. news in pumped into the internet about a sudden drop in price. The price drop is misunderstood by folks viewing a trust unit as a share of stock. If a stock distributes a 3% annual dividend, then each quarter the stock price drops 3/4% at open on ex. When a trust distributes income with a 20% yield, the price of a trust unit drops 5% at open on ex. One is hardly a blip. The other is "seen" as substantial, and panic ensues. The more selling, the more panic and selling, until the fearful are all sold out. Then the progression from after ex low to pre ex high begins, until it peaks out just before ex, and repeats over and over. It is relative to the large dollar amount of distribution, which is relative to the tax law requirements to distribute at least 90% of the income for the quarter. The large dollar drop is viewed as horrific by those who think trusts units are stock shares. By those who understand it is a trust distributing 90% of their income, the large dollar drop in price is viewed as a large increase in yield, and an opportunity to buy low, buy safe, and buy a high yield. These are opposite mind sets, hurting the ill informed, and opportunistic for the well informed. Knowledge is power.
    23 May 2012, 10:55 AM Reply Like
  • MrRocketman
    , contributor
    Comment (1) | Send Message
     
    Seeking Alpha still doesn't get mortgage REITS. A secondary would likely come a day or two after ex-dividend.
    22 May 2012, 06:50 PM Reply Like
  • RichardWolf1
    , contributor
    Comments (10) | Send Message
     
    STILL A GREAT RETURN AND THE BEST THAT I HAVE EVER SEEN! WHY GET OFF OF A "WINNER", ESPECIALLY WHEN INTEREST RATES REMAIN LOW?
    22 May 2012, 09:45 PM Reply Like
  • macombet
    , contributor
    Comments (218) | Send Message
     
    Div. Master, ha ha, AGNC is great, sold 99%, now in another 17% plus div. had bought AGNC very cheap last August and if it should do it again, everything I own again will be in it.
    22 May 2012, 10:42 PM Reply Like
  • kingdad
    , contributor
    Comments (1138) | Send Message
     
    I took my AGNC Money off the table with the nice dividend after pocketing 12% gain in 1 qtr. I too expect another issuance and given the overall volatility of the mkts recently, including the swings in mReits I also thought it prudent to book my YTD Profits and dividends until the Greece/EU situation is hashed out sometime in Mid/end June forward.

     

    I hope to reinvest in my variety of MReits and other good dividend paying stocks soon - as mkt conditions permit - given the potential severity of the EU crisis and all cash position is looking better and better at this time, just look at today's 05/23 commentaries.
    23 May 2012, 09:29 AM Reply Like
  • Patrick Harden
    , contributor
    Comments (440) | Send Message
     
    And right on cue, MTGE announces a 10 million share secondary after the bell today.
    23 May 2012, 11:06 PM Reply Like
  • kingdad
    , contributor
    Comments (1138) | Send Message
     
    Damn and I just bought yesterday AM. SOB!
    So much for this Qtr's Div being added to the bottomline.
    Hopefully I can settle for some overall growth instead.
    24 May 2012, 09:13 AM Reply Like
  • Jack Rice
    , contributor
    Comments (990) | Send Message
     
    I did the same -- added to my position last fortnight. Silly me.

     

    Don't worry. Sit tight. Anyway, why not hold on for a year and get long-term treatment plus the dividends?
    24 May 2012, 07:53 PM Reply Like
  • kingdad
    , contributor
    Comments (1138) | Send Message
     
    At least mtge has made a nice recovery so far only down 14 cents a share now. and the next Div will be here soon enough. Daddy needs the $$.

     

    Long mtge, wife arr

     

    btw a nice and recommended - very bullish by Fidelity and others, medi stock with a near 10% div is PDLI for those looking to diversify some. ex-div 06/05 @ 15 cents PS

     

    as always please do your own due diligence. what works for me may not be right for you.
    25 May 2012, 03:11 PM Reply Like
  • bgraves63008
    , contributor
    Comments (3) | Send Message
     
    I already own AGNC. Yesterday, I sold everything else in my portfolio to set me up to buy MTGE but I couldn't get any at the limit price I set. Lucky for me because I picked it up this morning at the opening bell for 23.10/share. Yes, I got it cheaper than my previous limit but that's just icing on the cake. I'm in these 2 REITS for the high distributions. I wish I had bought MTGE when I first became aware of it at $18/share but I was wary because it was new on the market. I just discovered that the 2 are related which made my decision to buy easier... Great experienced management for both. Personally, I think MTGE should appreciate to be about as much as AGNC and getting in now will greatly improve the returns in my IRA portfolio.
    24 May 2012, 02:20 PM Reply Like
  • Jack Rice
    , contributor
    Comments (990) | Send Message
     
    To me the mREIT is about the most transparent investment there is. We're betting on stable and low rates until the economy recovers, the timing of which has been telegraphed by central banks and hedged by the mREITs.

     

    Looking at the world economy -- including the US economy, still the strongest by far -- do we see its heating up in the foreseeable future? For myself, I can't imagine a scenario that will make interest rates pop any time soon. If this is a correct prognosis, then mREITs are a no-brainer.

     

    Or am I missing something?

     

    Ah, management. Ina Drew was a miracle worker for Morgan. Until she wasn't. Hubris is contagious. I hope Gary Kain doesn't catch it.
    24 May 2012, 08:27 PM Reply Like
  • mostserene1
    , contributor
    Comments (3360) | Send Message
     
    Just sold my AGNC (in an IRA) for a gain that far exceeds what the upcoming dividend will be. Naturally I will buy it back when the price dips. Who knew I'd make more on capital appreciation than dividends?
    29 May 2012, 05:45 PM Reply Like
  • Jack Rice
    , contributor
    Comments (990) | Send Message
     
    I love to do that -- make more on the gain than the dividend, then buy back in after the ex. I did that a couple of times, but I've stopped, because when I sell, my long-term meter resets to zero, and I'd rather hold for a year and save some taxes.

     

    On your IRA, I assume that even though taxes are deferred they still apply the same way, as to long- and short-term gains. So, my question is, did you hold out for long-term gains treatment, or does it not make much difference to your situation?
    29 May 2012, 07:34 PM Reply Like
  • Changi
    , contributor
    Comments (53) | Send Message
     
    So you gave up a juicy 16% yield on the hope that you can buy back the stock when the price dips? It will have to fall deep enough to compensate for that dividend renouncement. Tell us about it in a couple of months.
    30 May 2012, 11:32 AM Reply Like
  • FrankEllis
    , contributor
    Comments (280) | Send Message
     
    <<On your IRA, I assume that even though taxes are deferred they still apply the same way, as to long- and short-term gains.>>
    Traditional IRA is deferred ordinary income, entered in the top of the front page of the 1040, along with other ordinary income when a distribution is made. Distributions are not capital gains or dividends, but the same as wages, interest, self employment, rental income, or any other unqualified income. Tax rate is determined by the level of total taxable income and filing status. Long and short term does not apply to distributions from Traditional IRA's, but the gains and dividends compound tax free for as long as distribution is not made, at least until Required Minimum Distributions start at age 70-1/2.
    Roth IRA distributions are not taxable unless taken out prematurely.
    This is why the capital gain scenario is a viable tool for REITs in IRA's. No tax consequences, no long-term/short-term considerations. Since trusts pay out at least 90% of ordinary taxable income, trust distributions are not dividends with tax ceilings like stock qualified dividends. Trust units are not shares of corporate stock. Distributions from trusts are reported on Form K-1, not 1099DIV. Investors in trusts should understand the differences in investments and tax consequences. Just as one would not report a distribution from a bond as long or short term gain or qualified dividend, one does not report trust distributions as long or short tem because they are not qualified for reduced tax rates.
    Those who insist it is a poor choice to take capital gain rather than distribution simply have not done their home work, and are discussing the unknown as if they knew. The foundation of their argument is wholly false. Those who do their homework, understand trusts are not stocks, understand distributions are not dividends, understand the tax structure for trusts and IRA's, will continue to make good investment decisions based on facts rather than speculative imaginings. They will grow their portfolios and enjoy their abundance, and likely remain quiet rather than attempt to offer experience to those who resist because they think they already know everything. Learning from the experience of others is the least expensive education, but it requires silent listening. Learning each lesson individually, or repeating the same lesson over and over, expecting a different result, is costly. When suggestions are offered, and experience shared, it is a far better thing to go try it out, paper trade over a period of years in the charts, and figure it out. It is less beneficial to nay say, bad mouth, and display ignorance in writing for all to see. Negatives benefit no one. The power of positive thinking, positive sharing of experience, and honest questions asked from a mind open to receive will benefit all.
    Giving up 1/4 of a 16% yield as compared to a capital gain of 8 to 10% per quarter is a choice made by one who comprehends what years of charts can teach.
    30 May 2012, 05:57 PM Reply Like
  • Jack Rice
    , contributor
    Comments (990) | Send Message
     
    And the genius, in all the snarky, irrelevant, cut-and-paste verbiage, still didn't answer my question, which I wasn't asking him anyway. Nor did he tell me anything I didn't already know.
    31 May 2012, 04:04 AM Reply Like
  • kingdad
    , contributor
    Comments (1138) | Send Message
     
    AGNC should fall the amt of the dividend and if the expected scenario plays out they will announce another issuance within a day of the ex-d date which will push the stock even lower. But with all things only time will tell for sure.
    30 May 2012, 11:52 AM Reply Like
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