Mortgage REIT Q4 Dividend Growth Comparisons Show Significant Payout Volatility, Excluding AGNC

by: Zvi Bar

Several mREITs provided dividend data for the fourth quarter within the past week. On Monday, December 12, 2011 American Capital Agency (AGNC) declared a cash dividend of $1.40 per share for the fourth quarter 2011. The dividend is payable on January 27, 2012, to common shareholders of record as of December 22, 2011, with an ex-dividend date of December 20, 2011. AGNC has now maintained this $1.40 quarterly dividend for 10 straight quarters.

On Tuesday, December 13, 2011, Capstead Mortgage Corporation (CMO) announced a fourth quarter dividend of $0.43 per common share on January 20, 2012, to stockholders of record as of December 30, 2011. CMO’s new dividend is one-cent below its dividend last quarter, but four cents above its dividend for the same quarter last year.

Also on Tuesday, Invesco Mortgage Capital (IVR) announced that it plans to repurchase up to seven million shares of its common stock. Last week, on December 8, 2011, announced its quarterly dividend would be 65 cents, 15 cents below the previous quarter and 32 cents below the dividend for the fourth quarter of 2010.

Hatteras Financial (NYSE:HTS) also released its quarterly dividend on Tuesday, declaring $0.90 per common share to be paid on January 20, 2012, to shareholders of record on December 23, 2011, with an ex-dividend date of December 21, 2011.

On Wednesday, December 14, MFA Financial (NYSE:MFA) declared a regular quarterly cash dividend of $0.25 per share and an additional special cash dividend of $0.02 per share, both paid on January 31, 2012, to stockholders of record as of December 30, 2011, with an ex-dividend date of December 28, 2011.

Below is a chart of the above quarterly dividends and their change compared to the mREITs quarterly dividend both last quarter and for the same quarter last year. I both included and excluded MFA’s special dividend.

(Click to enlarge)

American Capital Agency, Capstead Mortgage and Hatteras Financial (HTS) are agency mREITS like Annaly (NLY). Agency mREITs only hold securities with a U.S. agency backing. Invesco Mortgage Capital and MFA Financial (MFA) are non-agency or hybrid mREITs, similar to Chimera (CIM). These hybrid type mREITs hold securities without an agency backing, though many also hold large positions in agency paper.

Without the agency guarantee, non-agency debt tends to pay a higher interest rate and offer these REITs a larger spread than agency REITs, but it causes these hybrids to have more significant risk. These recently announced dividends indicate that both agency and hybrid mREITs yet to announce their quarterly dividends may reduce their payouts. Both HTS, an agency mREIT, and IVR, a hybrid, had to reduce their dividends. CMO, another agency mREIT has had a considerably volatile dividend over the last few years, while hybrid MFA was able to sustain its dividend and add a special 2-cent one on top.

AGNC has now maintained its $1.40 dividend for ten quarters. Though the mREIT has raised its leverage considerably through the process, AGNC’s dividend and share performance has significantly outperformed most mREITs, including most of its agency peers. The mREIT’s higher leverage strategy should pose an elevated risk if interest rates begin to move up, but the strategy has continued to work for AGNC.

Within the yet to announce category of mREITs, neither Annaly, the largest publicly traded agency mREIT, Chimera, the largest publicly traded hybrid mREIT, have yet reported their dividends. Chimera already reduced its dividend from 17 cents in the fourth quarter of 2010 to 13 cents last quarter. Annaly reduced its quarterly dividend from 64 cents to 60 cents over the same period.

Disclosure: I am long NLY, CIM.

Disclaimer: This article is intended to be informative, and should not be construed as personalized advice as it does not take into account your specific situation or objectives.

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