Insider Buying At This 17% Dividend Yielding mREIT: Invesco Mortgage Capital Inc (IVR), American Capital Mortgage Investment Crp (MTGE)

Western Asset Mortgage Capital Corp (NYSE:WMC) has been named top dividend stock with insider buying last month in an article on Forbes. Paid in quarterly installments, the company distributes $3.60 per share. This article aims to explore the sustainability of the company’s mouthwatering dividend yield of over 16% and find other reasons to invest.

Invesco Mortgage Capital Inc (NYSE:IVR)Company Description

Western Asset Mortgage Capital is a relatively old company. It elected to be taxed as a REIT commencing December 31, 2012. The company is hybrid REIT since it has investments in residential mortgage backed securities, asset backed securities and commercial mortgage backed securities. Besides, the company’s RMBS are composed of both Agency and non-Agency MBS.

Recent Insider Buying

According to the company’s latest disclosures, Western Asset’s CFO doubled its stakes in the company. CFO Steven Sherwyn purchased over 10k shares at $21.31 price. This insider buying is encouraging for the company’s shareholders as it reflects the CFO’s confidence in the company’s future. The CFO is expecting the stock price to appreciate on the growth potential he sees. In another recent insider buying, Western Asset’s CEO purchased over 5k shares at a price of $20.74 per share in December 2012.

Dividends

The stock offers a dividend yield of 16.6%, when the 10-year Treasury is offering 1.88%. The company does not have a long track record of dividends. However, according to the most recent quarterly SEC filing, the company generated $21 million in cash from operations and paid of $3.9 million. This way the company’s cash dividend coverage ratio for the third quarter of the prior year comes out to be 5.4 times. This means the company has sufficient financial muscle to continue an elevated dividend distribution in the coming quarters.

Competition

Western Asset competes with other hybrid mortgage REITs including Invesco Mortgage Capital Inc. (NYSE:IVR) and American Capital Mortgage Investment Crp (NASDAQ:MTGE). Invesco Mortgage Capital Inc. (NYSE:IVR) has an MBS portfolio with Agency RMBS, non-Agency RMBS and commercial mortgage backed securities. Around 69% of the portfolio is Agency RMBS, followed by non-Agency RMBS at 17% and CMBS at 11%. Within the Agency MBS, the company has a large concentration in the 30-year fixed rate paper, which accounts for over 75% of the Agency RMBS held. This is followed by 17% of 15-year fixed rate Agency paper. Therefore, the company offers a diverse MBS mix which is why it reported only a 2 bps decline in its fourth quarter net interest rate spread.

American Capital Mortgage Investment Crp (NASDAQ:MTGE) is a similar hybrid mortgage REIT that is invested in both Agency and non-Agency residential mortgage backed securities. 90% of the company’s recent quarter end MBS were Agency RMBS. Among the Agency MBS, the company has a large concentration in the 30-year fixed rate MBS, which are 63% of the entire Agency portfolio. This is followed by 15-year fixed rate securities at 35% of the entire Agency MBS.

Valuations

Western Asset is currently trading at 57% discount to its book value while its peers, including Invesco Mortgage Capital Inc. (NYSE:IVR) and American Capital Mortgage Investment Crp (NASDAQ:MTGE) are trading at 2% and 3% premiums to their respective book values. This makes Western Asset an attractive investment opportunity compared to its peers.

Conclusion

I am bullish on Western Asset Mortgage Capital. The stock offers an elevated dividend yield that I believe is sustainable. Besides, the stock has attractive relative valuations compared to its peers. Further, the management’s bullish stance represented by its recent insider buying, support my stance. Therefore, I recommend investors looking for regular income invest in the stock.

The article Insider Buying At This 17% Dividend Yielding mREIT originally appeared on Fool.com and is written by Adnan Khan.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Burger Kings: The 10 Most Expensive Burgers in the World

The 10 Most Ethnically Diverse Countries in the World

The 10 Most Exclusive Credit Cards in the World

The 10 Most Expensive Cruise Ships in the World

The 10 Fastest Supercomputers in the World

The 10 Best Countries for Doing Business 2015

6 Most Expensive Fruits In The World

10 Worst Airlines in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!