On June 19, 2014, Western Asset Mortgage Capital Corporation (NYSE: WMC) announced its Board of Directors declared a cash dividend of $0.67 per share for the second quarter of 2014. The dividend is payable on July 29, 2014 to common shareholders of record as of June 30, 2014, with an ex-dividend date of June 26, 2014.
The company continues to pay a strong dividend, which represents an 18% return this quarter, following the same from last quarter. The initial reaction from investors was to scoop up the shares driving the price of the shares up $0.45 on June 20, 2014. We have seen investors drive the price of the stock over $17.00 each of the last dividend announcements. It went to $17.05 on March 19, 2014 just prior to the first quarter, 2014 dividend and to $17.48 on the December 23 and 24, 2013, just prior to the fourth quarter dividend.
The company also announced its estimated book value per share as of May 31, 2014 was approximately $15.44. The May 31, 2014 book value is unaudited and is only an estimate which will be finalized with the quarterly report, and released near the beginning of August, 2014. The company stated its book value during the first quarterly report of $14.19, which demonstrates an increase of $1.25. The company's estimated book value does not include this quarter's planned dividend. With the dividend of $0.67, that is still a $0.58 increase in the book value for the two months into the quarter. This is a positive step for the company.
Western Asset posted its first quarter earnings on May 8th and reported $0.56 EPS for the quarter, beating the Thomson Reuters consensus estimate of $0.20 by $0.36. Western Asset is better positioned with its investments than many research firms have given it credit. Over the last quarter, several analysts have downgraded the stock, but Western Asset continues to beat analysts' predictions and is delivering dividends to its investors. Here are a few comments:
Analysts at Zacks downgraded shares of Western Asset Mortgage Capital Corp from a "neutral" rating to an "underperform" rating in a research note on Tuesday, May 13th. They now have a $13.10 price target on the stock. Analysts at Jefferies Group cut their price target on shares of Western Asset Mortgage Capital Corp from $16.00 to $14.00 in a research note on Friday, May 9th. They now have a "hold" rating on the stock. Analysts at JPMorgan Chase & Co. reiterated a "neutral" rating on shares of Western Asset Mortgage Capital Corp in a research note on Wednesday, April 16th. They now have a $13.50 price target on the stock.
After all these negative analysis and reports, Western Asset just keeps piling up the profits and paying its investors 18% dividends.
One additional note that I reported earlier this month: CIO Anup Agarwal acquired 11,000 shares of the stock on the open market in a transaction dated June 6th. The stock was purchased at an average cost of $14.43 per share, with a total value of $158,730. Since that report, 3 Directors, Edward Fox, Mitchell Christian and Richard Roll all purchased 2088 shares at $14.37 on June 12, 2014. Insider trading is a powerful tool of persuasion when investors see insiders purchasing shares of their own company. The transactions were disclosed in SEC filings on the company website here.
Western Asset Mortgage Capital Corp. is a productive mortgage REIT that has a solid portfolio that is currently paying an 18% return for investors. The company has established a solid track record and continues to pay dividends based on profitable quarterly financial statements. Investors have the opportunity to benefit from the quarterly dividends by taking the cash, or reinvesting the dividends to grow their portfolio.
Western Asset will continue to be profitable throughout 2014 and into 2015 with the current market, and Western Asset has established a hedge position to protect itself and its investors in an ever-changing marketplace. Although no company, investor, or analyst can see all the challenges in the future, Western Asset continues to beat expectations from analysts and pay its investors. We will remain bullish on WMC as it continues to be profitable. There are very few investment opportunities that pay an 18% dividend return and have this solid of a portfolio. Our recommendation is a buy and hold for continued double-digit returns throughout 2014 and 2015.
Disclosure: The author is long WMC. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I continue to hold and build my position in WMC. I plan to continue this portfolio development for 2014 and 2015.