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 Click to see monthly returns in table format!

Lists

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

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!