American Capital Mortgage Investment: A View From The Perspective Of A Preferred Investor: An Update

| About: MTGE Investment (MTGE)

Summary

MTGE has had a complete, virtually mirror image reversal of fortune this past quarter from that of the previous one when it was at the top of its game.

And, as I predicted, MTGEP fell back from its irrationally exuberant Olympian high price to its current reality.

Although I still advise against buying it at its present price, it certainly won't be the worst bet you could make.

This review updates my initial look at American Capital (MTGE) from my September 15, 2016, article, "American Capital Mortgage Investment: A View From The Perspective Of A Preferred Investor"

Though I hope you will read the original article in full, my bottom-line assessment and buy recommendation at the time were as follows:

It appears for the present, all is good in MTGE town, and if you don't mind the $26.24 premium price, it still offers a respectable yield percent. Personally it's not my cup of Tetleys because sooner or later I expect that price to drop, but that's just me. You might have other ideas about making an investment, which appears safe for the moment and into the future.

Let's see how the commons have performed over the past quarter since I wrote the initial article. Because of the greater volume of common shares traded as opposed to the limited liquidity of most preferreds, I find the commons to be a better indicator of a company's overall performance.

It appears that over the past three months, MTGE's share price movement has been trending down, virtually the opposite of its performance over the previous quarter. On September 21, it was trading at $17.47, now at $ 16.04. That's a $1.43 price drop to virtually the same price it traded at six-months before.

Now let's compare MTGE's share performance to the same peers I compared it to previously: PennyMac Mortgage Investments (NYSE:PMT), Anworth Mortgage Asset Corp. (NYSE:ANH), Apollo Commercial Real Estate Finance (NYSE:ARI), MFA Financial (NYSE:MFA) and AG Mortgage Investment Trust (NYSE:MITT).

As I wrote then and I will repeat verbatim now:

Wow, now you see why I don't trade commons. MTGE performed right at the top of its peer group, chalking up the greatest gain. I'm impressed, yet confident in my decision not to trade commons, considering my past comment.

Yes I repeated it because MTGE, this past quarter, performed at the very bottom of its peer group. As a common shareholder I would have been bemused and befuddled; as a preferred shareholder, this recent common share performance rolls off my consciousness as water off of a duck's behind.

Before we discuss MTGE's future prospects, let's see how its preferred has fared during the past three months:

In lockstep with its commons, MTGEP has fallen from $26.24, a 52 week high, to its current $25.04 -- another indication of that market exuberance I wrote about that has reversed itself over the past quarter as I predicted it would:

It appears for the present, all is good in MTGE town, and if you don't mind the $26.24 premium price, it still offers a respectable yield percent. Personally it's not my cup of Tetleys because sooner or later I expect that price to drop, but that's just me. You might have other ideas about making an investment, which appears safe for the moment and into the future.

Wow, I'm even impressed by my foresight when I predicted that price drop. Now let's see if MTGEP is my cup of Tetley's now:

  • 2.03125 (Yearly Dividend)/25.04 (price) = 8.11% yield

Getting closer, but not yet quite where I want it to fall before placing my bid. Being the yield-hungry investor that I am, and after scanning the above chart, I'd rather wait for another flash-crash into the 22s and hope I get lucky. Yes, I'll probably miss out on a buy, but that's okay; I'm presently collecting more yearly dividends than I need to sustain my lifestyle. However, If you are building your portfolio of preferreds and have money burning a hole in you pocket, this is not the worst investment you could make.

Disclosure: I am/we are long MITT-B, ARI-C.

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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