Thornburg Mortgage (TMA) has been hit quite hard by the lack of the liquidity in the credit markets. As a result, they are expected to take a huge loss when they report results this week. However, what is not known is whether they will cut their .68 cent quarterly dividend and if so, by how much. If they do not cut the dividend or they cut it to above .40 cents, the stock has a potential to jump. There is good reason to believe that the dividend will not be cut too much.
- The fundamentals of the business not have changed drastically. They are not a subprime lender. They just got caught by lack of liquidity in the credit markets and had to liquidate their assets at a discount.
- Heavy insider buying.
- TMA has been a seller of their stock over the past years to get more liquidity. So, if they keep their dividend, their stock will go up and they will be able to sell their shares at a higher price.
A good way to play this earnings/dividend announcement is to buy 12.5 October calls for .25 cents. They offer a good risk/reward ratio.
Disclosure: I own these calls. I am not a owner of TMA.