We Bought Another Huge Yielder
Summary
- We just increased our position to get a big dividend yield and healthy upside in the share price.
- Shares have rarely been this cheap. They often trade in a very tight range.
- Since the fundamentals remain solid, we expect the share price to recover, giving us an attractive combination of dividend yield, upside, and stability.
- While there are plenty of high-risk sectors in this choice, our pick didn't reduce or delay dividends during the pandemic.
- We are also bringing you four additional picks and suggesting investors drop one which is overvalued relative to peers.
- Looking for a portfolio of ideas like this one? Members of The REIT Forum get exclusive access to our model portfolio. Learn More »
We turned up the quality dial to bring you this pick. That's more than we can say for the images we're able to get from Getty Images. NicoElNino/iStock via Getty Images
Get ready for charts, images, and tables because they are better than words. The ratings and outlooks we highlight here come after Scott Kennedy’s weekly updates in the REIT Forum. Your continued feedback is greatly appreciated, so please leave a comment with suggestions.
You want a fat dividend yield where volatility tends to be lower? We’ve got ideas for you.
Big Discount
There’s a great deal on AGNCP (AGNCP). We recently added to our position. We’ll take you through our trade and our reasoning.
Trades Placed
- Purchased 580 shares of AGNCP at $23.3463.
Index Cards
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Brief Commentary on AGNCP
We highlighted AGNCP in early February at $23.65 when we wrote Preferred Share Opportunities Abound.
Today, the shares are cheaper by about $.30 and have a few more weeks of dividend accrual. From June 2021 through January 2022, they rarely deviated much from $25.00 and we think there is a solid chance that they will return to that range within the next 12 months. While we wait, we're happy to collect a respectable 6.6% stripped yield.
You can see the stable share price in the image below, which spans the last 365 calendar days (including 239 market days):
StreetSmart Edge
You can see that prior to about the middle of January 2022, shares were regularly trading around $25.00, even going up to about $25.50 and slightly above on occasion. We think that's a reasonable price, though the current uncertainty in the market is causing more assets to trade at depressed valuations. Logically, investors have to choose between several attractive assets.
Since liquidity can be a bit weak, I'm highlighting a few other options that may appeal to investors as well: PMT-C (PMT.PC), NYMTL (NYMTL), and NYMTZ (NYMTZ). Each of these shares also suffered a larger than reasonable decline and should be on the radar for investors. I was considering starting a position in PMT-C, but the liquidity was so low that the bid-ask spread was over 1%. That's a rough situation for a trade alert. AGNCP was similarly attractive with a tighter spread and more liquidity, so I went with AGNCP instead.
Since you can't access our sheets (unless you're a subscriber), here are some additional index cards for those other shares I mentioned:
The REIT Forum The REIT Forum The REIT Forum
$100k Chart
The $100k chart (which demonstrates the amount invested on any prior day to reach $100k today) is actually one of the most useful tools in evaluating this purchase when comparing AGNCP with the other preferred shares from AGNC.
The REIT Forum
While we're here, I just want to highlight that AGNCM (AGNCM) is a terrible deal by comparison. There is a substantial gap in valuation.
Investors who buy AGNCP are getting a substantially better deal than anyone buying AGNCM at $24.53. They miss out on about $.18 in dividends per year for the next two years, but they save over $1.00 on the purchase price. That's NOT hard math. Is it better to get $.36 in dividends over 2 years or to save $1.00 today?
After both shares are callable (in 2024 for AGNCM and in 2025 for AGNCP), shares of AGNCP pay a bigger dividend every quarter thanks to the larger spread.
If investors happen to have shares of AGNCM, it would make sense to dump them and use the proceeds to buy AGNCP instead. Or, if AGNCP rallies rapidly, they could use AGNCO (AGNCO) at $24.23 instead.
What if the investor paid a higher price for AGNCM and is sitting on an unrealized loss in a taxable account? That would be even more incentive to make the trade as the sale of AGNCM would provide a taxable loss (not tax advice) while the investor would be swapping into a materially better investment.
Again, here's a comparison with the cards for AGNCM and AGNCO:
The REIT Forum The REIT Forum
Account
These shares are in a tax-advantaged account. AGNCP is a solid choice for a long-term investor, but it is also suitable for someone who wants to collect the income for a while and then look for a capital gain when shares trade closer to the $25.00 face value.
Returns for Open Positions
The REIT Forum
Our previous purchase, MFA-C (MFA.PC), is already doing quite well. We've seen share prices climb even as shares went ex-dividend. That's an easy performance to love. We're only slightly down on our purchase of AGNCP from February 7th, 2022 and the current price just makes them more attractive.
As a quick note for readers who aren't familiar with our work, the chart above only includes our preferred share positions. We have a similar chart for equity REIT positions and another for our mortgage REIT and BDC positions. For open positions in common shares, see the disclosure at the end of the article.
Review
Shares of AGNCP offer a stripped yield over 6.62% and have about 7% upside in the share price to get back to $25.00. With the low-risk rating on AGNC's preferred shares, this is an easy time for income investors to boost their holdings and get a bit more yield and a bit of extra call protection. Thanks to the declining share price, the yield to call has increased from about 6% a few months ago to an impressive 9.1% today. If AGNC does decide to call the shares, investors would have a hard time justifying any complaints. If they don't call the shares, the investor still entered with a favorable yield.
Investors in AGNCM would be wise to get out of that position promptly and replace it with AGNCP or AGNCO given the absurd relative valuations.
The rest of the charts in this article may be self-explanatory to some investors. However, if you’d like to know more about them, you’re encouraged to see our notes for the series.
Stock Table
We will close out the rest of the article with the tables and charts we provide for readers to help them track the sector for both common shares and preferred shares.
We’re including a quick table for the common shares that will be shown in our tables:
Type of REIT or BDC | ||||
Residential Agency | Residential Hybrid | Residential Originator and Servicer | Commercial | BDC |
Let the images begin!
Residential Mortgage REIT Charts
 The REIT Forum |  The REIT Forum |  The REIT Forum |
Source: The REIT Forum
Commercial Mortgage REIT Charts
 The REIT Forum |  The REIT Forum |  The REIT Forum |
BDC Charts
 The REIT Forum |  The REIT Forum |  The REIT Forum |
Q4 2021 Charts
Several of these companies have not reported Q4 2021 values yet. If they have not reported or reported very recently, they will not have a bar in the following charts:
 The REIT Forum |  The REIT Forum |  The REIT Forum |
Preferred Share Charts
 The REIT Forum |  The REIT Forum |  The REIT Forum |
 The REIT Forum |  The REIT Forum |  The REIT Forum |
Preferred Share Data
Beyond the charts, we’re also providing our readers with access to several other metrics for the preferred shares.
After testing out a series on preferred shares, we decided to try merging it into the series on common shares. After all, we are still talking about positions in mortgage REITs. We don’t have any desire to cover preferred shares without cumulative dividends, so any preferred shares you see in our column will have cumulative dividends. You can verify that by using Quantum Online. We’ve included the links in the table below.
To better organize the table, we needed to abbreviate column names as follows:
- Price = Recent Share Price - Shown in Charts
- BoF = Bond or FTF (Fixed-to-Floating)
- S-Yield = Stripped Yield - Shown in Charts
- Coupon = Initial Fixed-Rate Coupon
- FYoP = Floating Yield on Price - Shown in Charts
- NCD = Next Call Date (the soonest shares could be called)
- Note: For all FTF issues, the floating rate would start on NCD.
- WCC = Worst Cash to Call (lowest net cash return possible from a call)
- QO Link = Link to Quantum Online Page
Ticker | Price | BoF | S-Yield | Coupon | FYoP | NCD | WCC | QO Link | P-Link |
$24.52 | FTF | 7.09% | 6.88% | 4.98% | 4/15/2024 | $4.35 | |||
$24.50 | FTF | 7.23% | 7.00% | 5.79% | 10/15/2022 | $1.81 | |||
$24.30 | FTF | 6.76% | 6.50% | 5.71% | 10/15/2024 | $5.17 | |||
$23.71 | FTF | 6.53% | 6.13% | 5.54% | 4/15/2025 | $6.27 | |||
$23.95 | FTF | 7.26% | 6.95% | 5.73% | 9/30/2022 | $1.92 | |||
$22.82 | FTF | 7.12% | 6.50% | 5.12% | 3/31/2023 | $3.81 | |||
$24.40 | FTF | 6.92% | 6.75% | 5.62% | 6/30/2024 | $4.40 | |||
$24.49 | 7.17% | 7.00% | 7.17% | 1/28/2025 | $5.61 | ||||
$24.89 | FTF | 7.01% | 6.90% | 6.06% | 4/15/2025 | $5.71 | |||
$23.64 | 8.04% | 7.50% | 8.04% | 3/26/2022 | $1.71 | ||||
$24.57 | FTF | 6.95% | 6.75% | 5.86% | 10/30/2024 | $5.15 | |||
$24.96 | FTF | 7.59% | 7.50% | 6.37% | 8/15/2024 | $4.74 | |||
$23.93 | FTF | 7.52% | 7.13% | 6.48% | 8/15/2024 | $5.53 | |||
$21.76 | FTF | 7.40% | 6.38% | 6.34% | 2/15/2025 | $8.04 | |||
$24.27 | FTF | 7.28% | 7.00% | 8.29% | 11/15/2026 | $9.06 | |||
$26.37 | FTF | 7.71% | 8.13% | 6.00% | 3/15/2024 | $2.70 | |||
$26.09 | FTF | 7.67% | 8.00% | 6.22% | 6/15/2024 | $3.42 | |||
$23.30 | 7.25% | 6.75% | 7.25% | 8/24/2026 | $9.20 | ||||
$25.18 | Bond | 6.71% | 6.75% | 6.71% | 3/26/2022 | -$0.13 | |||
$24.75 | Bond | 6.11% | 6.00% | 6.11% | 8/1/2023 | $2.49 | |||
$25.20 | 8.07% | 8.00% | 8.07% | 3/26/2022 | $0.27 | ||||
$25.10 | FTF | 8.10% | 8.00% | 6.37% | 3/30/2024 | $4.39 | |||
$24.74 | FTF | 7.96% | 7.75% | 5.38% | 9/30/2025 | $7.53 | |||
$24.94 | FTF | 8.16% | 8.00% | 5.99% | 03/30/2024 | $4.55 |
Second Batch:
Ticker | Price | BoF | S-Yield | Coupon | FYoP | NCD | WCC | QO Link | P-Link |
$24.99 | FTF | 8.22% | 8.13% | 6.23% | 04/27/2027 | $10.67 | |||
$23.80 | FTF | 8.10% | 7.63% | 6.21% | 07/27/2027 | $11.68 | |||
$23.36 | FTF | 7.84% | 7.25% | 5.96% | 1/27/2025 | $7.08 | |||
$25.41 | 8.18% | 8.20% | 8.18% | 8/17/2022 | $0.71 | ||||
$25.02 | FTF | 8.36% | 8.25% | 6.21% | 4/15/2024 | $4.54 | |||
$23.65 | FTF | 8.36% | 7.75% | 6.13% | 12/27/2024 | $7.18 | |||
$24.14 | FTF | 7.92% | 7.50% | 6.11% | 9/27/2027 | $11.66 | |||
$24.87 | FTF | 8.02% | 7.88% | 7.06% | 1/15/2025 | $6.04 | |||
$23.66 | FTF | 8.58% | 8.00% | 6.64% | 10/15/2027 | $12.84 | |||
$23.05 | FTF | 7.55% | 6.88% | 7.28% | 10/15/2026 | $10.11 | |||
$22.75 | 7.79% | 7.00% | 7.79% | 1/15/2027 | $11.00 | ||||
$24.90 | 7.53% | 7.50% | 7.53% | 3/26/2022 | $0.09 | ||||
$22.96 | FTF | 7.08% | 6.50% | 6.36% | 3/31/2025 | $6.93 | |||
$24.21 | 7.23% | 7.00% | 7.23% | 5/12/2022 | $0.99 | ||||
$24.89 | FTF | 8.29% | 8.25% | 6.19% | 3/30/2024 | $4.24 | |||
$23.90 | 8.82% | 8.25% | 8.82% | 3/26/2022 | $1.62 | ||||
$23.50 | 8.70% | 8.00% | 8.70% | 3/26/2022 | $2.00 | ||||
$23.03 | FTF | 8.88% | 8.00% | 7.74% | 9/17/2024 | $7.44 | |||
$25.00 | FTF - Floor | 8.75% | 8.63% | 8.75% | 7/30/2024 | $5.39 | |||
$24.45 | 8.16% | 7.88% | 8.16% | 5/21/2026 | $9.03 |
Strategy
Our goal is to maximize total returns. We achieve those most effectively by including “trading” strategies. We regularly trade positions in the mortgage REIT common shares and BDCs because:
- Prices are inefficient.
- Long-term, share prices generally revolve around book value.
- Short-term, price-to-book ratios can deviate materially.
- Book value isn’t the only step in analysis, but it is the cornerstone.
We also allocate to preferred shares and equity REITs. We encourage buy-and-hold investors to consider using more preferred shares and equity REITs.
Performance
We compare our performance against 4 ETFs that investors might use for exposure to our sectors:
The REIT Forum
The 4 ETFs we use for comparison are:
Ticker | Exposure |
One of the largest mortgage REIT ETFs | |
One of the largest preferred share ETFs | |
Largest equity REIT ETF | |
The high-yield equity REIT ETF. Yes, it has been dreadful. |
When investors think it isn’t possible to earn solid returns in preferred shares or mortgage REITs, we politely disagree. The sector has plenty of opportunities, but investors still need to be wary of the risks. We can’t simply reach for yield and hope for the best. When it comes to common shares, we need to be even more vigilant to protect our principal by regularly watching prices and updating estimates for book value and price targets.
Ratings:
- Bullish on preferred share AGNCP, AGNCO, PMT-C, NYMTL, NYMTZ
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This article was written by
Colorado Wealth Management is a REIT specialist who began his decades-long investment career in a family-owned realtor office before launching his own company and embracing his drive for deep-dive REIT analysis. He holds an MBA and has passed all 3 CFA exams. He focuses on Equity REITs, Mortgage REITs, and preferred shares.
He leads the investing group The REIT Forum. Features of the group include: Exclusive REIT focus analysis, proprietary charts and data models, real-time trade alerts posted multiple times a month, multiple subscriber-only portfolios, and access to the service's team of analysts and support staff for dialogue and questions on the REIT space. Learn more.Analyst’s Disclosure: I/we have a beneficial long position in the shares of AGNCO, CIM-A, ARR-C, DX-C, NRZ-D, AGNCP, MFA-C, NRZ, SLRC, AAIC, PMT, FSK, RC either through stock ownership, options, or other derivatives. 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.
Colorado Wealth Management Fund and Scott Kennedy are supporting contributors for The REIT Forum. Our ratings and outlooks will often overlap.
Any recommendation posted in this article is not indefinite. We closely monitor all of our positions. We issue Buy and Sell alerts on our recommendations, which are exclusive to our members.
I have an indirect conflict of interest with ABR and STWD. Neither I, nor any contributor for The REIT Forum, will provide investment advice, reply to questions, or engage in discussions regarding these two mREIT stocks.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
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Comments (61)
and a self-storage REIT from 2008.
I bought Sovran Self Storage in 05' which changed it's name to Life Storage. I don't like the name change but's still a keeper.
I'm sticking with it even though it didn't do as great as AAPL, MSFT, or NVDA in 15 years. I had to allocate safely back then and bought ADBE too.
PPS Since Friedman was still alive, if you followed the money supply issue, you saw 1986-1989 coming, but I had no savings then due to family health issues.
So, while I agree with you regarding what could happen, that's correct. The key words being "could happen". If you bought it during the 2020 drop for $4-$5, you probably don't care that this year it's floating right around the $8 range and picked up monthly divvies for more than a year.
