An 11.48% Yield That Is Stronger Than It Looks


  • Recent analysis suggested ARMOUR Residential REIT's dividend was in trouble, but I am disputing that thesis.
  • One challenge in evaluating the REIT is the different meanings of "leverage".
  • When ARMOUR Residential REIT provides its portfolio updates, the leverage figures exclude its TBA positions.

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A recent article on ARMOUR Residential REIT (NYSE:NYSE:ARR) brought out some concern among shareholders and potential investors in the mREIT. The article suggests ARR's dividend is in trouble. While I'm not saying the company's dividend is rock-solid, I do believe an informed investor could come away from the piece thinking that a dividend cut was a near certainty. While there are quite a few mortgage REITs that are clearly not covering their current dividend, ARR does not fall into that group.

To be clear, I respect the author of the other piece, and it is to his credit that his work was convincing enough to make intelligent investors question their beliefs.


This article uses slides from ARR's monthly portfolio presentations. They are the primary tool for preparing this analysis.


To assess the strategy ARR is using and the most likely future results, it is critical to define the term "leverage". Investors and analysts can easily use the term without specifying exactly what they mean, so I want to hammer it out to avoid any confusion.


There are two kinds of leverage for a mortgage REIT. There is GAAP leverage, which is more easily seen, and there is economic leverage. If you can divide assets by equity, you can get a feel for GAAP leverage very quickly. Economic leverage, on the other hand, looks at the amount of leverage implied through the use of derivatives. Specifically, I'm referencing TBAs. That stands for "To Be Announced". These securities are an agreement to buy at a pool of securities at a future date.

One of the funny things about accounting is that the mREIT has an economic ownership of the assets, but the assets don't really belong to them yet. The last

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Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in EITHER MREIT OR THE PREFERRED SHARES over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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