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It's time for free money. Take advantage of investors who hate math.

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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.

Today, I want to share a note we sent to subscribers of The REIT Forum yesterday. This was sent before the latest details came out on AGNC’s shocking new share: AGNCL (AGNCL). We posted a full article on AGNCL today.

Start of Subscriber Article

Investors who are in AGNCN (AGNCN) are getting a home run opportunity to swap their shares of AGNCN at $24.90 for any of the other 3 preferred shares from AGNC:

Any of those 3 would be a great choice.

These prices are listed specifically to help investors recognize if prices swing after publication.

Investors are piling into AGNCN in anticipation of the upcoming switch to a floating rate on 10/15/2022. The floating rate is great and it will result in a very material increase in the dividend rate. However, the difference isn't remotely close to covering the spread for the cost of shares.

AGNCO is the most direct comparison because AGNCO's floating spread of 4.993% is the closest to AGNCN's spread of 5.111%.

When both are floating, AGNCN should cost a tiny bit more than AGNCO.

Therefore, the question is whether AGNCN's new dividend rate is high enough to warrant paying an extra $2.70 per share. The answer is no.

AGNCN floats 2 years earlier than AGNCO. To earn $2.70 over 2 years, AGNCN needs to pay out about $1.35 per share more than AGNCO. These figures are a bit rough, but only by a few pennies.

AGNCO will pay out $1.625 per year for those two years.

For AGNCN to pay out an extra $1.35 per year, it needs to average $2.975 per share for the next two years. That would be 11.9% on the face value of $25.

Since the spread is 5.111%, that means the short-term rate would need to average about 6.789% over that time period.

That's not happening.

Favorable Scenario for AGNCN

I would consider short-term rates averaging 4% over the next 2 years to be pretty high. If we saw that, AGNCN would average an annualized floating rate of $2.277. That scenario would justify a price spread of $1.3055 - if investors could be confident AGNCN wouldn't get called.

Compared to the current spread of $2.70, that's a huge swing.

My price targets use a smaller spread because if AGNCN gets called, I would expect prices to pop materially higher for the other AGNC preferred shares. That creates additional upside that has some level of value that deserves to be recognized.

Some Minor Adjustments Will Be Needed

I'll need to make some slight adjustments to the targets to reflect short-term rates rising faster than previously expected. However, the adjustments should generally be pretty small with most being less than 2%.

These are the current targets:

High Yield Shares

The REIT Forum

Note: The price targets already include the value of dividend accrual.

Signal From Markets

With AGNCN moving to trade so close to call value, the markets are telling investors that a floating yield over 8.4% on an AGNC preferred share is simply too good. Therefore, we should expect the other AGNC preferred shares to rally as investors realize that they can have a similar share in a year or two. They get a lower dividend rate upfront, but they pay a lower price and should see share prices become much closer to each other.

$100K Chart

The chart shows the recent outperformance. This is a clear market failure.

Investment Performance

The REIT Forum

Bid and Ask

The difference of $2.70 isn't just in the Google Sheets.

Here's the bid and ask on AGNCO as I'm writing:

Price

Schwab

Notice the ask at $22.19.

For AGNCN, the bid is at $24.91:

Share Price

Schwab

That's a spread of $2.72 based on the prices an investor would expect (liquidity permitting) from selling AGNCN to the bid at $24.91 and buying AGNCO at the ask of $22.19.

The article was prepared on the basis of $2.70.

In my opinion, AGNCP and AGNCM are similarly attractive to AGNCO. However, to get this alert out quickly, I focused on only one share.

This is a home-run opportunity for investors in AGNCN to switch shares.

PS. AGNCN technically falls into our "buy under" target, but investors should look at the relative attractiveness between shares. The other options are dramatically more attractive.

Other Topics

That was the end of yesterday's alert to subscribers. I've got a few more things to write today.

Annaly Capital Management (NLY) just announced a 1-for-4 reverse split. Well, looks like the price of NLY will be over $10 per share again! The reverse split should send prices over $25.00, at least temporarily. That doesn't really help investors, but it will be nice for having a bit more precision on "per share" metrics since it reduces rounding errors.

NLY still trades at a significant premium to book value. They issued shares at the start of August, but they should be looking to issue more shares as soon as they can. Investors can still buy other mortgage REITs with similar assets at materially lower valuations. Choosing to buy NLY over the other REITs is simply refusing to consider the facts.

NLY also declared a dividend at $.88, which is the same as the $.22 per share before the split.

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

AGNC

PMT

BXMT

MAIN

NLY

EFC

RITM

GPMT

CSWC

DX

NYMT

WMC

ARCC

ORC

MFA

RC

TSLX

ARR

MITT

TPVG

CHMI

AAIC

OCSL

TWO

GAIN

IVR

GBDC

EARN

SLRC

ORCC

PFLT

TCPC

FSK

PSEC

AINV

Let the images begin!

Residential Mortgage REIT Charts

Note: The chart for our public articles uses the book value per share from the latest earnings release. Current estimated book value per share is used in reaching our targets and trading decisions. It is available in our service, but those estimates are not included in the charts below.

Residential mortgage REIT price to book ratio chart

The REIT Forum

Residential mortgage REIT dividend yield chart

The REIT Forum

Residential mortgage REIT earnings yield chart

The REIT Forum

Commercial Mortgage REIT Charts

Commercial mortgage REIT price to book ratio chart

The REIT Forum

Commercial mortgage REIT dividend yield chart

The REIT Forum

Commercial mortgage REIT earnings yield chart

The REIT Forum

BDC Charts

BDC price to book ratio chart

The REIT Forum

BDC dividend yield chart

The REIT Forum

BDC earnings yield chart

The REIT Forum

Preferred Share Charts

Preferred share price comparison chart

The REIT Forum

Preferred share stripped yield comparison chart

The REIT Forum

Preferred share floating yield comparison chart

The REIT Forum

preferred share price comparison for higher risk shares

The REIT Forum

preferred share stripped yield comparison for higher risk shares

The REIT Forum

preferred share floating yield comparison for higher risk shares

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

AGNCM

$22.11

FTF

7.89%

6.88%

8.64%

4/15/2024

$5.91

AGNCM

Prospectus

AGNCN

$24.87

FTF

7.13%

7.00%

8.46%

10/15/2022

$0.57

AGNCN

Prospectus

AGNCO

$22.50

FTF

7.33%

6.50%

9.23%

10/15/2024

$6.17

AGNCO

Prospectus

AGNCP

$21.25

FTF

7.31%

6.13%

9.42%

4/15/2025

$7.97

AGNCP

Prospectus

NLY-F

$24.34

FTF

7.15%

6.95%

8.42%

10/8/2022

$0.70

NLY-F

Prospectus

NLY-G

$22.21

FTF

7.33%

6.50%

8.30%

3/31/2023

$3.60

NLY-G

Prospectus

NLY-I

$23.26

FTF

7.27%

6.75%

8.81%

6/30/2024

$4.69

NLY-I

Prospectus

ARR-C

$21.00

8.39%

7.00%

8.39%

1/28/2025

$8.24

ARR-C

Prospectus

DX-C

$22.40

FTF

7.82%

6.90%

9.81%

4/15/2025

$7.34

DX-C

Prospectus

FBRT-E

$19.70

9.70%

7.50%

9.70%

10/8/2022

$5.74

FBRT-E

Prospectus

EFC-A

$21.32

FTF

8.04%

6.75%

9.99%

10/30/2024

$7.56

EFC-A

Prospectus

RITM-A

$21.50

FTF

8.84%

7.50%

10.60%

8/15/2024

$7.27

RITM-A

Prospectus

RITM-B

$20.77

FTF

8.69%

7.13%

10.78%

8/15/2024

$7.81

RITM-B

Prospectus

RITM-C

$18.90

FTF

8.54%

6.38%

10.94%

2/15/2025

$10.11

RITM-C

Prospectus

RITM-D

$20.76

FTF

8.54%

7.00%

11.74%

11/15/2026

$11.70

RITM-D

Prospectus

PMT-A

$22.99

FTF

8.85%

8.13%

9.83%

3/15/2024

$5.05

PMT-A

Prospectus

PMT-B

$22.88

FTF

8.76%

8.00%

10.05%

6/15/2024

$5.62

PMT-B

Prospectus

PMT-C

$18.75

9.02%

6.75%

9.02%

8/24/2026

$12.90

PMT-C

Prospectus

AIC

$24.26

Bond

6.97%

6.75%

6.97%

10/8/2022

$0.83

AIC

Prospectus

AAIN

$24.39

Bond

6.21%

6.00%

6.21%

8/1/2023

$2.11

AAIN

Prospectus

CIM-A

$21.28

9.42%

8.00%

9.42%

10/8/2022

$3.85

CIM-A

Prospectus

CIM-B

$21.10

FTF

9.50%

8.00%

10.67%

3/30/2024

$6.98

CIM-B

Prospectus

CIM-C

$19.70

FTF

9.86%

7.75%

10.09%

9/30/2025

$11.20

CIM-C

Prospectus

CIM-D

$20.50

FTF

9.78%

8.00%

10.48%

03/30/2024

$7.58

CIM-D

Prospectus

Second Batch:

Ticker

Price

BoF

S-Yield

Coupon

FYoP

NCD

WCC

QO Link

P-Link

TWO-A

$22.67

FTF

9.09%

8.13%

9.91%

04/27/2027

$11.98

TWO-A

Prospectus

TWO-B

$21.37

FTF

9.05%

7.63%

10.15%

07/27/2027

$13.16

TWO-B

Prospectus

TWO-C

$20.81

FTF

8.84%

7.25%

10.00%

1/27/2025

$8.73

TWO-C

Prospectus

MFA-B

$19.05

9.86%

7.50%

9.86%

10/8/2022

$5.99

MFA-B

Prospectus

MFA-C

$18.32

FTF

8.88%

6.50%

11.67%

3/31/2025

$10.74

MFA-C

Prospectus

GPMT-A

$21.68

FTF

8.20%

7.00%

10.57%

11/30/2026

$10.97

GPMT-A

Prospectus

CHMI-A

$23.31

8.95%

8.20%

8.95%

10/8/2022

$2.09

CHMI-A

Prospectus

CHMI-B

$22.63

FTF

9.28%

8.25%

9.93%

4/15/2024

$5.91

CHMI-B

Prospectus

IVR-B

$20.50

FTF

9.47%

7.75%

10.23%

12/27/2024

$8.88

IVR-B

Prospectus

IVR-C

$20.06

FTF

9.36%

7.50%

10.59%

9/27/2027

$14.34

IVR-C

Prospectus

NYMTM

$21.56

FTF

9.30%

7.88%

11.36%

1/15/2025

$8.37

NYMTM

Prospectus

NYMTN

$20.29

FTF

10.05%

8.00%

11.17%

10/15/2027

$15.21

NYMTN

Prospectus

NYMTL

$20.40

FTF

8.57%

6.88%

11.62%

10/15/2026

$11.91

NYMTL

Prospectus

NYMTZ

$19.09

9.33%

7.00%

9.33%

1/15/2027

$13.79

NYMTZ

Prospectus

AAIC-B

$20.93

8.53%

7.00%

8.53%

10/8/2022

$4.49

AAIC-B

Prospectus

AAIC-C

$21.37

FTF

9.88%

8.25%

10.61%

3/30/2024

$7.17

AAIC-C

Prospectus

MITT-A

$19.84

10.42%

8.25%

10.42%

10/8/2022

$5.24

MITT-A

Prospectus

MITT-B

$17.95

11.17%

8.00%

11.17%

10/8/2022

$7.13

MITT-B

Prospectus

MITT-C

$18.02

FTF

11.13%

8.00%

13.45%

9/17/2024

$10.95

MITT-C

Prospectus

ACR-C

$22.20

FTF

9.90%

8.63%

10.47%

7/30/2024

$7.12

ACR-C

Prospectus

ACR-D

$20.95

9.57%

7.88%

9.57%

5/21/2026

$11.56

ACR-D

Prospectus

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:

  1. Prices are inefficient.
  2. Long-term, share prices generally revolve around book value.
  3. Short-term, price-to-book ratios can deviate materially.
  4. 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:

Best service on Seeking Alpha

The REIT Forum

The 4 ETFs we use for comparison are:

Ticker

Exposure

MORT

One of the largest mortgage REIT ETFs

PFF

One of the largest preferred share ETFs

VNQ

Largest equity REIT ETF

KBWY

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 shares AGNCM / AGNCN / AGNCP.

Want the best research? It’s time to raise your game. Get access to several features you won’t find on the public side.

You can get access to everything we have to offer right now. Try our service and decide for yourself.

This article was written by

Author of The REIT Forum
The #1 REIT Service For Those Targeting Strong Total Returns
You want to be on The REIT Forum because it is the #1 REIT research service on Seeking Alpha measured by returns. Period. See our Tipranks page. How did we get there? We did a better job of managing risk and discovering opportunities. We didn’t jump into trashy high-yield equity REITs with the rest of the crowd. We cover securities for trading and securities for the buy-and-hold investor. We are clear about the difference and that enabled us to perform better since inception and better in 2020.


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.


We post our portfolio for you. You also get real-time alerts on every trade we place. Our reasoning for placing a trade is explained in clear English. You can even see the exact trades with the images we include from our stock accounts. We don’t offer you several different “portfolios”, instead, we show you exactly what we own, when we bought it, and how we are doing in that position. We make it simple for investors to follow our strategy.


You’ll find several reports on The REIT Forum that don’t get posted to the public side of Seeking Alpha. Many of our public reports are dramatically reduced versions of subscriber articles. If you enjoy our public articles, you’ll love the content we keep for subscribers.


Disclosure: I/we have a beneficial long position in the shares of AGNCO, CIM-A, ARR-C, DX-C, RITM-D, AGNCP, MFA-C, NYMTZ, NYMTL, MFA-B, AGNCM, PMT-C, RITM, SLRC, AAIC, MFA, GPMT, 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.

Additional disclosure: 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.

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