Are Your Dividends Sustainable?
Adnan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
This article brings to you the latest dividend declaration and dividend cuts by some of the most famous dividend stocks within the US mortgage REITs sector. The article also aims to distinguish between the mREITs which were forced to cut their dividends from the mREITs which maintained their shareholder distributions.
Armour Residential
Armour Residential (NYSE: ARR) reported a 12.5% decrease in its monthly dividend rate for the first quarter of the current year. The company operates as a mortgage REIT that invests exclusively in mortgage backed securities for which any of the government Agencies guarantees the principal and interest payments. Armour's recent quarters performance remained behind expectations. The bottom line of $0.22 per share, fell $0.05 behind what analysts had estimated. While core income for the fourth quarter of $69.8 million was 2% over the prior quarter, taxable REIT income surged 4.5% over the same time period on a higher gain on sale of MBS. With the new dividend, the dividend yield comes out to be 12.9%. The stock is currently trading at 10% discount to its book value.
CYS Investments
CYS Investments (NYSE: CYS) was forced to cut its quarterly dividend for the first quarter by 20%. The new dividend now is $0.32 per common share. Over half of the company’s investment portfolio is composed of 15-year fixed rate securities, followed by the 30-year and hybrid ARMs at 18% and 19%, respectively. The company reported a 30 bps decline in its fourth quarter net interest rate spread and conditional prepayment rate. However, the top line surged 4% to $79.6 million. After taking into account the recent dividend cut, the stock is yielding 10.5% and trading 9% below its fourth quarter book value.
American Capital Mortgage Investment
American Capital Mortgage (NASDAQ: MTGE) is a sister company of American Capital Agency. American Capital Mortgage operates as a hybrid mortgage REIT with investments in both Agency and non-Agency RMBS. The company recently declared a quarterly dividend of $0.9 per common share, in line with the previous dividend distribution. Around 90% of the company’s investment portfolio is Agency RMBS, while the remainder is non-Agency RMBS. Within the Agency RMBS, 30-year fixed rate MBS dominate, followed by 15-year fixed rate securities. The company’s Agency MBS are considered to comprise of 83% HARP or lower balance securities. These are highly prepayment protected as prepayment speed increases on lower loan balance and higher LTV HARP loans should be significantly less than generic coupons. The stock is currently yielding 13.75% and trading at a moderate 2% premium to its book value.
AG Mortgage Investment Trust
AG Mortgage Investment Trust (NYSE: MITT) is another hybrid mortgage REIT that invests in a variety of mortgage backed securities. The company declared a quarterly dividend of $0.8 per common share, in line with the previous dividend. AG Mortgage Investment Trust reported 28% increase in its fourth quarter interest income while at the same time it reported 54% sequential increase in its interest expense. This resulted in an increase in net interest spread of 23%. The stock is trading at 13% premium to its book value and yielding 12.12%.
Anworth Mortgage Asset
Anworth Mortgage Asset (NYSE: ANH) also declared its quarterly dividend in line with the previous dividend. Traditionally, the company had a concentration in adjustable rate mortgages (ARMs). At the end of the fourth quarter, 45% of its investment portfolio was adjustable rate Agency MBS with 2-5 years reset period. This is down from 51% at the end of the third quarter. The 15-year and 30-year fixed rate Agency MBS were 48% and 4%, respectively. During the fourth quarter, the company generated 2.92% yield on its assets, down 12 bps from the linked quarter. The company reported $45.1 billion in net income, down 16% from a year ago. The stock is currently trading at 15% discount to its book value and yielding 10%.
Conclusion
It is clear that most of the pure play mortgage REITs were forced to cut their shareholder distributions, while hybrid REITs declared dividends in line with their previous distributions. A hybrid mortgage REIT includes in its portfolio commercial mortgage backed securities and high yielding non-Agency residential mortgage backed securities. Therefore, I recommend investors buy hybrid REITs to enhance their regular income.
Adnan Khan has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!
