American Capital Cements Prospects As Compelling Investment In 2015
- American Capital is correctly targeting aggressive portfolio composition strategy in prevailing low rate environment.
- Initiatives to increase 30-year MBS portfolio and reduce hedges will augur well for EPS in 2015.
- Company offers sustainable and impressive yield of 12.1%.
American Capital Agency's Upcoming Q4 2014 Earnings Projection - Part 3
- Most 15- and 30-year fixed-rate agency MBS coupons saw a modest to material price increase during the fourth quarter of 2014.
- As such, I am projecting AGNC will report a net unrealized gain on available-for-sale securities of $550 million for the fourth quarter of 2014.
- I am projecting AGNC will report a net unrealized gain on interest rate swaps (upon reclassification to interest expense) of $36 million for the fourth quarter of 2014.
- My projection for AGNC’s comprehensive income (loss) amount for the fourth quarter of 2014 is stated in the “Conclusions Drawn” section of the article.
- A future article, which will be published prior to AGNC’s quarterly press release, will project the company’s BV as of 12/31/2014 and 1/23/2015.
American Capital Agency Stock Price Remains Steady With Excellent Dividend Yield
- Dividend has remained constant at $0.22 per share, with a yield of over 12%.
- The stock price has remained constant with the market’s volatility.
- When interest rates do rise, there is an opportunity for higher profit margins.
American Capital Agency's Upcoming Q4 2014 Earnings Projection - Part 2
- I am projecting AGNC will report a material loss on derivative instruments and other securities for the fourth quarter of 2014.
- I am projecting AGNC will report a relatively unchanged management fees expense for the fourth quarter of 2014.
- My projection for AGNC’s net income (loss) and earnings per share amounts for the fourth quarter of 2014 are stated in the “Conclusions Drawn” section of the article.
- Part 3 of the article will project the remaining accounts that make up AGNC's other comprehensive income (loss) and total comprehensive income (loss) amounts which directly affect BV.
I Have Concerns Regarding American Capital Agency After The Dividend Announcement
- American Capital Agency, one of my favorite mortgage real estate investment trusts, has just declared its first monthly dividend payment of 2015.
- Why didn't the company announce book value?
- I discuss three pressing concerns that may impact my bullish call.
American Capital Agency's Upcoming Q4 2014 Earnings Projection - Part 1
- I am projecting AGNC will report a slight decrease in interest income for the fourth quarter of 2014 when compared to the prior quarter.
- I am projecting AGNC will report a slight increase in interest expense for the fourth quarter of 2014 when compared to the prior quarter.
- I am projecting AGNC will report a slightly higher net gain on the sale of agency securities for the fourth quarter of 2014 when compared to the prior quarter.
- Part 2 of the article will project the remaining accounts that make up AGNC's net income (loss) amount (mainly the quarterly valuation changes in the company’s derivative portfolio).
- Part 3 of the article will project the remaining accounts that make up AGNC's other comprehensive income (loss) and total comprehensive income (loss) amounts.
Comparing American Capital Agency's Recent BV, Dividend, Risk And Valuation To Several mREIT Peers - Part 2
- While AGNC had a slight dividend per share rate increase during the fourth quarter of 2014, most of the company’s mREIT peers declared a stable dividend.
- AGNC and NLY continued to have yield percentages modestly below the agency mREIT average thus inherently lowering the risk of dividend reductions going into 2015.
- ARR continued to have yield percentages modestly above the agency mREIT average thus inherently raising the risk of dividend reductions going into 2015 (which recently came to fruition).
- Even though WMC and NYMT continued to have yield percentages materially above the hybrid/multipurpose mREIT averages, both companies have unique business models which need to be considered regarding dividend sustainability.
- My current buy, sell, or hold recommendation and dividend sustainability projection on each mREIT company within this analysis is stated in the “Conclusions Drawn” section of the article.
- Rates will remain low longer than anticipated by the market.
- AGNC will continue to take advantage of low interest rates and adjust its portfolio accordingly when the rates finally rise.
- TWO retains potential for significant price appreciation.
12% Dividend American Capital Agency Already Has A $0.20 Book Value Gain In Q4 2014
- AGNC pays a great 12% dividend.
- The book value has gone up by $0.20 (about 0.78%) through the first two months of Q4 2014.
- Using the eleven month book value gain in 2014 and the dividend for FY2014, the total economic return is about 18.5% for FY2014.
- The stock price would have to rise 15%+ to get to the book value as of November 30, 2014. There is upward potential.
American Capital Agency: A 26% Total Return For 2014
- AGNC declares a $0.22 per share dividend for December 2014.
- This marks the third straight monthly dividend at this level.
- At current prices, yields 12% and trades at a 15% discount to its estimated NAV per share.
Update: American Capital Agency Declares Its Latest Dividend - Why I'm A Buyer Here
- American Capital Agency has just declared its third monthly dividend payment.
- I predicted the dividends would be maintained but book value is the larger story.
- The present news is bullish and I am a buyer at these levels.
Comparing American Capital Agency Corp.'s BV, Dividend, Risk, And Valuation To Several mREIT Peers
- Even though AGNC reported a minor decrease in BV during the third quarter of 2014, the company reported a trailing nine-month increase in BV near the top of the sector.
- AGNC continued to increase the company’s proportion of 30-year fixed-rate agency MBS holdings during the third quarter of 2014 which will increase BV in the fourth quarter of 2014.
- Furthermore, AGNC modestly decreased the company’s hedging coverage ratio from 88% to 76% during the third quarter of 2014 which will increase BV during the fourth quarter of 2014.
- As of 11/28/2014, AGNC, ARR, and NLY traded at or near material discounts to BV as of 9/30/2014 while WMC and NYMT traded at minor and material premiums, respectively.
- My current BUY, SELL, or HOLD recommendation for AGNC and each company analyzed will be in the “Conclusions Drawn” section of this article.
American Capital Agency Corp.: Is Now A Good Time To Buy This Mortgage REIT?
- American Capital Agency's shares already returned 21% so far in 2014.
- The mortgage REIT trades at a persistent net asset value discount and at an (historically) appealing P/B ratio.
- Capital gains potential could boost investors' total returns.
- Book value momentum likely to be a major catalyst for American Capital Agency's share price in 2015.
Annaly Looks To Increase Commercial Portfolio As Stock Continues To Offer Attractive Total Return
- The company has the option to increase its investment portfolio as it sees attractive opportunities in the MBS space due to lower leverage.
- NLY has added grocery-anchored shopping centers to its commercial portfolio and is eager to take commercial portfolio to 25% of equity.
- Investments to boost asset yield are very important to increase core EPS and cement the sustainability of its dividends.
- Fed will also keep interest rates low, as the economy is not strong enough to support the end of the expansionary monetary policy.
American Capital Solidifies Attractive Credentials With Double-Digit Dividend Yield And Price Appreciation Potential
- Company has done right by lowering hedge position and investing in high-yielding assets to take advantage of low interest scenario.
- Jobs report for last month was mixed as labor force participation rate improved, but growth in wages was not strong enough.
- Fed will keep rates low until impact of recession completely eliminated from economy.
- Stock offers dividend yield of 11.70% and potential for price appreciation of 6%.
Update: American Capital Agency Announces November Dividend, Our Raise Confirmed
- American Capital Agency has just declared its second monthly dividend payment of $0.22 and book value rose.
- When I last covered American Capital Agency in depth, I predicted that the dividend cuts were over and that the company was committed to keeping its payout steady.
- This news is very welcomed and I remain bullish on the company and the stock moving forward.
American Capital Agency's Dividend Projection For November - December 2014
- AGNC reported ERTI and net dollar roll income available to common shareholders of $237 million (or $0.67 per common share) for the third quarter of 2014.
- AGNC had a quarterly ERTI and net dollar roll underpayment (overpayment) of $8 million and a quarterly payout ratio of 97%.
- My exact AGNC dividend per share projections for November 2014 and December 2014 are stated in the “Conclusions Drawn” section of the article.
- My exact MTGE and NLY dividend per share projections for the fourth quarter of 2014 are stated near the end of the article.
- My current buy, sell, or hold recommendation for AGNC, MTGE, and NLY is stated in the “Conclusions Drawn” section of the article.
A So-So Q3 For 11.7% Dividend American Capital Agency Still Leaves It Looking Good
- AGNC raised its dividend for Q4 2014 to $0.66 (11.7% annually). It also moved to a monthly dividend ($0.22 per month).
- AGNC lost $0.72 per share in book value in Q3 2014; but its overall total economic gain in for Q1-Q3 2014 has been 14.9%.
- CIO Gary Kain believes the expected to be muted near term interest rate environment should be a good one for AGNC.
How American Capital Agency Corp. Controls The Cost Of Capital: A Primer On Swaps And Repurchase Agreements
- American Capital Agency Corp.’s interest rate swaps have a reasonable maturity.
- The average rate paid under the interest rate swaps is in line with the maturity.
- AGNC does very well at limiting the interest rate they pay out under the terms of repurchase agreements.
- The notional value of interest rate swaps feels high relative to the value of outstanding repurchase agreements.
- There's little to like about the mortgage REIT industry.
- We don't think the individual investor should be dabbling in shares of American Capital or any other mortgage REIT, for that matter.
- Let's take a look at American Capital's third-quarter performance.
Dec. 20, 2013, 12:12 PM
- "Do the math," says SA contributor REIT Analyst, eyeing a short opportunity in Western Asset Management (WMC +5.4%) following its surprising $2.35 dividend announcement last night.
- The rise in the stock today puts it above November 30 estimated book value per share of $16.76 - this at a time when the rest of the mREIT sector (REM+1.2%) is trading at a significant discount to book, including American Capital Agency (AGNC +1.3%) at more than a 20% discount, and Anworth (ANH+1%) at nearly 30% - just to name two. And don't forget the dilutive share issuance necessary to pay out the stock portion of the dividend.
- Among others who announced dividends last night, Annaly (NLY +2.1%) gains after surprising no one by cutting a nickel to $0.30, and Chimera (CIM+2.2%) rises after announcing a special $0.20 dividend.
- Lumped in with the mREITs, but with a slightly different business model is Arlington Asset Management (AI +3.3%) which continues a big run this year after holding its payout steady. SA contributor Darren McCammon reminds Arlington is a C corp, so - for taxable accounts - its yield is taxed at lower qualified rates, making its 13.4% annualized payout comparable to an mREIT paying 16%. Check McCammon's post for the rest of the advantages. The stock is up 28% YTD vs. big declines for the mREIT sector.
- Related ETFs: MORT, MORL
Dec. 19, 2013, 7:18 AM
- In addition to cutting the quarterly dividend by $0.15 to $0.65 per share, American Capital Agency (AGNC) also announced a fast acceleration in its buyback program - purchasing 28.2M shares, or 7% of the float in Q4. Since starting the program in 2012 Q4, the company has repurchased about 43M shares for $934M.
- To review: AGNC - with a highly liquid, easy to value, and easy to sell portfolio - trades at a 21.8% discount to book value, and CIO Gary Kain has made clear his preference for buying $1 of MBS at a discount through share repurchases.
- The stock's ahead 0.7% premarket.
- Also: Sister-company American Capital Mortgage's dividend cut and buyback news.
Dec. 18, 2013, 4:37 PM| 33 Comments
Dec. 16, 2013, 3:35 PM
- The mortgage REIT sector (REM -0.6%) is lower on a bright green day for the rest of the market, with Anworth Mortgage's (ANH -1.2%) 33% dividend cut Friday night offering another excuse to Sell. Anworth is an agency mortgage player, investing mostly in adjustable mortgages. Anworth's new forward yield of 7.5% is so far out of line with the double digits of the rest of the industry, it suggests even more declines are in store for the stock, or big dividend cuts lie ahead for competitors. At $4.19, Anworth is selling for a near-30% discount to September 30 book value.
- Down the most today is American Capital Mortgage (AGNC -2.7%), and its non-agency cousin, American Capital Agency (MTGE -1.7%) is off sharply as well.
- Others: Annaly (NLY -1.3%), Armour (ARR -1.2%), Western Asset (WMC -1.8%), Apollo (AMTG -1.4%), Ellington (EFC -0.4%), (EARN +0.2%)
- Related ETFs: MORT, MORL
Dec. 10, 2013, 11:12 AM
- The mREIT sector (REM +1.2%) is up for a 2nd consecutive day, with Hatteras Financial's (HTS +1.5%) 9% dividend cut overnight not hurting the stock and suggesting maybe a lot of bad news has been priced in. Core income in Q3 was $0.44 per share and the new payout is $0.50.
- Another adjustable-rate mortgage player, CYS Investments (CYS +2.4%) is also ahead, as is Capstead Mortgage (CMO +0.9%). Others: Annaly (NLY +1.5%), American Capital (AGNC +1.7%), Invesco (IVR +2.4%), Western Asset (WMC +1.3%).
- Related ETFs: MORT, MORL
Dec. 6, 2013, 11:42 AM
- There's a bit of green spreading across the mREIT sector this morning as Treasurys reverse an early plunge following the strong jobs report - the 10-year yield is now off 3 basis points to 2.85% after climbing to 2.93% just after the 8:30 ET release.
- However, there's no relief for sector leaders Annaly (NLY -1%) and American Capital Agency (AGNC -1.5%), both of which continue to reel following Goldman's Sell recommendation yesterday - each have carved out new 52-week lows this morning. There may be plenty of players in the mREIT sector, but for the institutional big boys who have the Goldman report on their desks, there's just NLY and AGNC. Others in the red include: Armour (ARR -0.7%) and CYS Investments (CYS -1.1%).
- Posting gains: Chimera (CIM +0.8%), Invesco (IVR +0.2%), Hatteras (HTS +0.2%), Dynex (DX +0.7%), New York Mortgage (NYMT +0.3%), Apollo Residential (AMTG +0.7%), Javelin (JMI +1.1%), AG Mortgage Investment (MITT +2.3%).
- Related ETFs: REM, MORT, MORL.
Dec. 5, 2013, 1:17 PM
- A check of the mortgage REITs following Goldman's interestingly-timed initiation of Annaly (NLY -1.6%) and American Capital Mortgage (AGNC -1.1%) with Sells finds the sector (REM -0.8%) again underperforming the broad market.
- To review: Annaly is off about 40% in 8 months and American Capital is off about 42% in 7 months. Yes, higher interest rates have delivered a hit to their portfolios (which tend to be longish in duration), but investor distaste for the names also has both trading at roughly 20% discounts to their book values.
- So is the call late? Maybe. On the other hand, one well-known hedge funder defines a 50% loss as holding a stock that goes from being down 80% to being down 90%.
- Other names of interest: CYS Investments (CYS -0.4%), Western Asset (WMC -1%).
- Related ETFs: MORT, MORL
Dec. 5, 2013, 7:45 AM
- Initiating coverage on the sector giants, Goldman sees both Annaly (NLY) and American Capital Agency (AGNC) as Sells.
- "We expect book value to fall as rates rise and MBS spreads to widen post Fed tapering," says analyst Eric Beardsley, giving NLY a $9.50 price target. With management taking actions to protect said book value such as moving into short-duration assets and boosting hedges, expect more earnings headwinds and dividend cuts of about 40%. An expected dividend of $0.80 per share is an 8% yield based on the current stock price. Total return of 2% over the next year compares to 10% Beardsley expects for the overall mREIT sector (REM).
- It's the same story for AGNC which gets an $18.50 price target. Beardsley expects book value to fall 15% to $21.39 by Q4 next year and the dividend to drop to $2 - a 10% yield based on the current stock price. He sees total return of 4% over the next year, again compared to 10% for the overall sector.
- Related ETFs: MORL, MORT
Dec. 2, 2013, 3:48 PM
- There's no mercy for the mREIT sector (REM -1.6%) as this morning's strong economic data sends the 10-year Treasury yield five basis points higher to 2.80%. Among the new 52-week lows today are sector giants Annaly (NLY -1.6%) and American Capital Agency (AGNC -1.8%).
- Also down sharply are Armour (ARR -2.4%), CYS Investments (CYS -2.4%), Dynex (DX -2.5%), American Capital Mortgage (MTGE -2.8%), AG Mortgage (MITT -2.4%), and Arlington Asset (AI -3.1%).
- Management matters, and investors have clearly lost some faith in the leadership of Annaly and American Capital - both of which trade at more than 20% discounts to book value. The newest favorite is that of Ellington Financial (EFC), where management has mostly been able to preserve book value this year. Company structure may have helped too - Ellington is a partnership, not a REIT and has somewhat more flexibility with its portfolio. The stock trades at just a 6% discount to October 31 reported book.
- ETFs: MORT, MORL
Nov. 30, 2013, 9:42 AM
- "People are absolutely freaking out about interest-rate risk," says Jeff Gundlach, sitting down with Robert Shiller to size up the investment landscape. Ever the contrarian, Gundlach suggests last year's 1.4% low in the 10-year Treasury yield could still get taken out. The catalyst? "You never know until after the fact; otherwise, it would be priced in the market. But there is no inflation."
- The see "freaking out" in a picture, check out the price charts of the mortgage REITs, particularly the two proxies for riding the long end of the curve - Annaly (NLY) and American Capital Agency (AGNC). Gundlach: "You can take advantage of pockets of opportunity in what people don't want ... If you're willing to take the interest-rate [risk], you can get yields of 11% in the agency mortgage market."
- Constructive on housing (but not homebuilders), Gundlach is also bullish on non-agency mortgage paper, calling it the cheapest sector in fixed income on a risk-adjusted basis. Fans of also beaten-up non-agency mREITs like American Capital Mortgage (MTGE), MFA Financial, Dynex (DX), and Two Harbors (TWO) may want to take notice.
- Mortgage REIT ETFs: REM, MORT, MORL
- Long-duration Treasury ETFs: TBT, TLT, TMV, TBF, EDV, TTT, TMF, TLH, ZROZ, SBND, DLBS, VGLT, UBT, TLO, LBND, TENZ, TYBS, DLBL
Nov. 26, 2013, 1:54 PM
- At what point do you just liquidate the portfolio? Habits die hard and traders used to hitting the sell button on the mREITs (REM -0.5%) are doing so again today even as interest rates slide a bit.
- Hitting another multi-year low today, Annaly (NLY -1.3%) - with a portfolio of very liquid assets heavily hedged against rising rates - is now selling for 20% less than September 30's reported book value.
- American Capital Agency (AGNC -0.8%) - with an equally liquid hedged portfolio - is also at about a 20% discount. Previous: CIO Kain promises to continue buybacks at this discounted level.
- Other agency players: Hatteras (HTS -1%), CYS (CYS -1.4%), Capstead (CMO -1%).
- Non-agency mREITs are slipping as well - even as Case-Shiller reports continued solid gains in home prices (which should boost portfolio values). Two Harbors (TWO -1.5%), MFA (MFA -1.4%), Western Asset (WMC -1.1%).
- ETFs: MORT, MORL
Nov. 22, 2013, 3:11 PM
- A nice backup in rates (the 10-year Treasury yield is off 4 bps to 2.75%) is of no help to the mortgage REITs (REM -0.3%), with sector kingpins Annaly (NLY -1.4%) and American Capital Agency (AGNC -1.2%) both hunkered down (NLY earnings call, AGNC earnings call) for the Fed taper, and both hitting 52-week lows today.
- Earlier this week, AGNC and MTGE CIO Gary Kain took his case all the way to Asia at the Citi financial services conference in Hong Kong (transcript). Yes, book value has been hit by higher rates, but also by how much the market is willing to pay for it. Whereas AGNC traded at an average of 110%-120% of book over the past 4-5 years, it's now at sub-90%.
- Discounts can last for awhile, he admits, but also reminds this isn't some opaque bank balance sheet, but instead an easily valued, highly liquid portfolio of assets trading at $0.85-$0.90 on the dollar. As long as it persists, American Capital will continue selling MBS for $1 and buying back stock at a discount.
- Previous: Kain makes a similar case
- Related ETFs: MORT, MORL
- Other sector stocks: Armour (ARR), Two Harbors (TWO -0.8%), CYS (CYS +0.1%), AG Mortgage (MITT -0.5%)
Nov. 14, 2013, 8:36 AM
- Gary Kain's co-chief investment officer at American Capital Mortgage (MTGE) - Jeff Winkler - has resigned from the company, effective yesterday.
- The entire mREIT (REM) industry has struggled this year, particularly MTGE and cousin American Capital Agency (AGNC), which - for the moment - have given up the management premiums they used to enjoy.
- SEC Form 8-K
Nov. 13, 2013, 3:57 PM
- 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%).
Nov. 11, 2013, 4:28 PM
- After Q2's shock, earnings maximization turned to book value preservation, says Nomura's Bill Carcache, but the market isn't rewarding management teams for this at the moment. "We have no confidence getting back in now in hopes that shares will begin their climb back toward book value ... 30-year MBS is not an asset class we want to own ahead of [tapering]."
- Hedge books may offer some protection, he says, but at quarter-end American Capital Agency (AGNC -1.8%), Annaly (NLY -2.3%), and CYS Investments (CYS -0.5%) held 43%, 80%, and 42% of their portfolios in 30-year MBS, respectively.
- American Capital is of particular interest given the "management premium" its CIO Gary Kain has enjoyed. "This quarter’s review made it clear to us that traditional active managers have no edge and are holding back to see how the mortgage market reacts to Fed tapering." Ouch.
- Given the above, Nomura thinks a 15% discount to book value is entirely appropriate for the agency players and lowers its price target accordingly on AGNC and NLY. CYS has its price target nudged higher as it's already below 85% of book.
- Earlier today: Annaly de-levered and heavily hedged.
- Previous: AGNC's Kain hunkers down.
- Previous: CYS's Kevin Grant is perhaps a bit more aggressive.
- Relevant ETFs: REM, MORT, MORL.
Nov. 8, 2013, 9:51 AM
- Sharply higher interest rates has a number of mREITs (REM -2.4%) hitting new 52-week lows. Most of the stocks were already on the defensive over the past few sessions following near-universally disappointing Q3 results.
- Annaly (NLY -3.3%), American Capital (AGNC -2.9%), (MTGE -2.5%), Armour (ARR -3.7%), Invesco (IVR -3%), CYS Investments (CYS -5.3%), Hatteras (HTS -3%).
- Other related ETFs: MORT, MORL.
- Earlier: Big beat on jobs number sends Treasury prices south.
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