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This 8% Dividend Yield Needs An Upgrade


  • Anworth Mortgage Corporation could call one of their preferred shares.
  • Investors holding ANH-A are exposed to a significant capital loss as soon as a call is announced.
  • ANH-A is now insanely overvalued; there is a better option with a higher dividend yield.
  • ANH has a strong portfolio, but that doesn’t mean they won’t call their ANH-A shares.

This research report was produced by Colorado Wealth Management Fund, Founder of The Mortgage REIT Forum, with assistance from Big Dog Investments.

One dividend yield has been called. Will another follow?

There was a rare occurrence recently (preferred shares for mortgage REITs are rarely called) when Apollo Commercial Real Estate Finance (ARI) announced they were going to be calling their preferred share ARI-A. I had purchased the fat yield of Apollo Commercial’s preferred share and was able to harvest my gains of ARI-A.

Why is this material information?

Anworth Mortgage Asset Corporation (ANH) currently has a preferred share that is materially overvalued. The recent call that just came out for ARI-A is driving up the likelihood of a call because that call on ARI-A supports that the higher yielding preferred shares will in fact get called, if the company has sufficient capital. The issuance of a large volume of new shares of ANH-C should provide the capital the company needs to get the job done.

The chart below will compare ANH-A to ANH-C:

These are the prices I’d consider a buy:

  • ANH-A: $25.27
  • ANH-C: $24.87

ANH-C has dipped significantly into the green for me recently, but right now it’s comfortably in the hold range. I had a position in ANH-C until it was coming out of my buy zone and I needed to free up capital for another investment. ANH-A, on the other hand, is ridiculously overpriced. The price would have to drop $1.33 for me to consider it a buy. As of now, I would’ve sold it $0.93 ago.

I can understand where some investors may find the yield for ANH-A more appealing than ANH-C. However, there is a much better alternative:

One of the preferred shares from AG Mortgage Investment Trust (NYSE:MITT) has a higher yield

This article was written by

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Analyst’s Disclosure: I am/we are long MO, WMT, TGT, PM, FSIVX, FSITX, BMNM, WPG, GPMT, SFM. 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.

No financial advice. Investors are expected to do their own due diligence and consult with a professional who knows their objectives and constraints. CWMF actively trades in preferred shares and may buy or sell anything in the sector without prior notice. Tipranks: Sell ANH. I am also long DX-A, CBL-D, and GBLIL.

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Comments (15)

Bought the common last September and am up 20% and a 10% Dividend ain't bad
Buy range for CBL-D?
Colorado Wealth Management Fund profile picture
Target buy under price was around $23.50 for the last several weeks. Tons of shares held by members of the Forum now. I was getting people into it back in June, under $23 and before the ex-dividend. It finally crossed that line. Still a great security to hold for income in my view. Disclosure: Long CBL-D. I ate a great bowl of my own cooking.
Cuip99 profile picture
I bought the MITT-A rather than any ANH preferred. I do own ANH common but that is it.
Wildrose profile picture
Can someone show me the mathematical steps required to calculate the stripped yield so I may understand its properties better?
Colorado Wealth Management Fund profile picture
Remind me in a private message? Responding from mobile. I can put together a quick article showing steps. Images make it easier.
Colorado Wealth Management Fund profile picture
Following up.

Here is the article:

Disclosure: It turns out all the pictures were dog and cat photos.
RackJack profile picture
Thanks for the feedback. I noticed the pricing behavior that you described after the ex-dividend date. I'm still in so wish me well.
RackJack profile picture
Colorado, did you sell CMO-E?
Colorado Wealth Management Fund profile picture
Yes, I harvested my gains shortly after ex-dividend. Within 2 days of ex-div they were trading at the same prices they saw before ex-div despite Treasury rates running higher. That was enough for me to say:
"Thanks for the gains, I'm out". I sold ARI-A at about the same time (within a couple hours) and for similar reasons.
All of this stuff, including the preferreds, will drop in price substantially when the FED starts rolling off their MBS holdings.
Fomc tightening cycle is coming to an end, maybe another 6-12 months max. Curve is flattening and will probably invert if the fomc keeps going. Mreits and the preferred should outperform when they come back to easing.
I am a novice with preferred shares. Another presentation was put forth a couple of months ago about the Anh-A similar to what you are presenting. I decided to hold my shares for the dividend. Granted if they call, I lose the PROFIT over $25, but I have reached the point of another dividend being paid and that just about compensates for it. If it is not called then I will be to the plus. Both the other article and yourself are speaking of buying Anh-A now and another at current prices. If doing this I agree with you. But, I bought into Anh-A in Dec 2013 @ $24.74 and on another dip @ $24.50. I paper traded at your price stated in the article and I would received more shares of the Mitt-A but with the lower coupon rate, I actually receive less in a dividend payment. As I hold this in my Ira, I would not have to pay the capital gains, lowering the funds available to purchase the Mitt-A, but if holding in a Reg Account, the taxes alone make it a not good choice. I will be holding my Anh-A and hope they don't call for awhile. if they do I will have a decision to make.
Colorado Wealth Management Fund profile picture
Assuming no taxes or trade expenses (to control for size of transactions), your paper trade seems to have used different prices.
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