Lou Siegs

American Capital Agency Corp.: Dividend Cuts Coming

While I do believe AGNC will lower its dividend as capital markets improve, the potential for up-side gain on sale of term securities is always there. Leverage is a very manageable 7.3% and could be increased to support loftier dividends. Leverage most likely will be increased as capital markets normalize. Most important is US gov getting out of the mortgage business in March, which should offer excellent buying opportunities and support wider spreads in 2010.

As to price to book, I am pegging the stock at 1.5x book by Q3 2010. I base this valuation on MLP and real estate REIT yields relative to their price to book and the fact that portfolio valuation in the agency REITS is far, far more transparent.

All in all, AGNC has a top management team who has navigated the downturn as well as anyone.