Capturing Money With Two Harbors Preferred Share

Jan. 18, 2020 6:56 AM ETTwo Harbors Investment Corp. (TWO), TWO.PD16 Comments


  • We look for opportunities during ex-dividend season.
  • TWO had an opportunity with one of their preferred shares.
  • TWO-D was one of our choices for a dividend capture and played out nicely.
  • This idea was discussed in more depth with members of my private investing community, The REIT Forum. Get started today »

This research report was produced by The REIT Forum with assistance from Big Dog Investments.

Two Harbors (NYSE:TWO) has seen an interesting month with their preferred shares. We will be going over some of their current valuations, but mostly looking at what happened with the price around the recent ex-dividend date.

Source: The REIT Forum

TWO-B (TWO.PB) has seen a significant climb in the share price. The current valuation looks absurd, especially next to TWO-A (TWO.PA).

Source: The REIT Forum (Our price ranges)

If investors were choosing between those shares, then TWO-A looks like a better deal. Both have huge premiums to call value, several years of call protection, and switch over to floating rates. However, TWO-A is more attractive relative to TWO-B.

Source: The REIT Forum (risk factors)

Note that TWO-A remains far away from our target buy-under price and is near the top end of its range also (near the overpriced level).

We will primarily be talking about TWO-D (NYSE:TWO.PD). First, we’d like to quickly touch on the common stock.

TWO note on common stock

TWO is a non-Agency mortgage REIT. They have performed exceptionally well over the years by utilizing a combination of non-Agency RMBS and MSRs (mortgage servicing rights). We bought Two Harbors twice over the summer (both purchases are within the green box):

The first time was on 5/30/2019. We thought we had caught the bottom, but shares continued to dip a little further. We raised our positions significantly on 6/4/2019 at an even lower price. That time, we were more accurate in calling the bottom. TWO rarely trades at a significant discount to book value, but we had found an opportunity to capture that discount. We have since captured the gain on that position.

TWO has an excellent track record of delivering value to

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Securities for the buy-and-hold investor generally carry much lower risk. If we enter a high-risk position, we plan to capitalize on a change in the valuation. We monitor those positions very carefully, rather than hoping everything turns out well over the next several years. That’s why we have so few losses in our investing.

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Disclosure: I am/we are long TWO-D. 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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