Dynex Capital: Income From Mortgages

| About: Dynex Capital (DX)
This article is now exclusive for PRO subscribers.

This morning I added Dynex Capital (NYSE:DX) to the Barchart Van Meerten Speculative portfolio for positive price momentum. The portfolio contains stocks trading under $10 that are hitting the most frequent new highs when screened on Barchart:

(Click to enlarge)

Dynex Capital, Inc., together with its subsidiaries, operates as a mortgage real estate investment trust. The company primarily invests in mortgage-backed securities issued or guaranteed by a federally chartered corporation, commercial mortgage-backed securities, and non-agency residential mortgage-backed securities, as well as securitized residential and commercial mortgage loans. It finances its investments through a combination of repurchase agreements, securitization financing, and equity capital. The company has elected to be treated as a REIT under the Internal Revenue Code. As a REIT, it would not be subject to federal income tax, provided it distributes at least 90% of its taxable income to its shareholders. The company was founded in 1987 and is based in Glen Allen, Virginia.

Factors to consider:

Barchart technical indicators:

  • 96% Barchart technical buy signal
  • Trend Spotter buy signal
  • Above its 20, 50 and 100 day moving averages
  • 17 new highs and up 14.27% in the last month
  • Relative Strength Index 66.68%
  • Barchart computes a technical support level at 9.54
  • Recently traded at 9.61 worth a 50 day moving average of 8.82

Fundamental factors:

  • 7 Wall Street brokerages firms follow this stock and analysts predict income will increase by 5% a year for at least the next 5 years
  • Analysts have released 1 strong buy, 4 buy and 2 hold recommendations for their clients
  • P/E ratio is only 8.75
  • The dividend rate is 11.32% at today's price

General investor interest:

  • I use the readers of Motley Fool to gauge individual investor interest and 86 readers are following this stock
  • The general reader voted 88% that the stock will beat the market
  • The more savvy All Stars also voted 88% for the same result

I think it's informative to compare the price momentum of a stock to its competition. While DX is up 20% in the last 50 trading sessions, Capstead Mortgage (NYSE:CMO) is up 12%, iStar Financial (SFI) down 11% and Redwood Trust (NYSE:RWT) down 7%:

(Click to enlarge)

Summary: Dynex Capital looks like a good candidate for total return or income portfolios. With a P/E less than the market's and a dividend rate over 11% this looks like a winner. I'd play the 14 day turtle channel on this one:

(Click to enlarge)

Disclosure: I am long DX.