What You Must Watch When American Capital Agency Corp. (AGNC) Reports Earnings

Page 1 of 2

Will American Capital Agency Corp. (NASDAQ:AGNC) back up its massive dividend with a massive fourth quarter?

Over the next few days, investors can expect to see the results from quite a few companies in the mortgage-REIT industry. American Capital Agency is slated to release its results after the market close on Thursday. It’ll be joined by Two Harbors Investment Corp (NYSE:TWO), CYS Investments Inc (NYSE:CYS), and Invesco Mortgage Capital Inc (NYSE:IVR), all of which are expected to report before the week closes. And while Annaly Capital Management, Inc. (NYSE:NLY) — which we could probably call the standard bearer for the space — hasn’t set a firm date for its release, I wouldn’t be surprised if we saw that later this week as well.

But as investors gear up for this rush, and American Capital Agency’s report in particular, what should they be looking out for in the earnings reports and conference calls that follow?

American Capital Agency Corp. (NASDAQ:AGNC)

What we know: Spreads ain’t pretty
While the rapidly falling interest rate environment of 2007, 2008, and the years that followed was great for mortgage REITs, the more recent experience hasn’t been as favorable.

The short-term rates at which mREITs borrow fell quickly, but over time, the rate compression has caught up on the asset side and the rates that the mREITs can earn have fallen, reducing the spread they collect in the middle. That the Federal Reserve has stepped in to buy billions in mortgage-backed securities — thereby pushing up prices and reducing yield — hasn’t helped, either.

The fact that this is happening shouldn’t be news to American Capital Agency investors. When fourth-quarter numbers come out, there’s little reason to believe that there will be any major improvement on this front, though it’s possible that further pressure has been muted.

So… how’s your book?
Here’s the upside to the above: When rates are going down, that’s happening as prices are rising. That means that as it’s become harder for American Capital Agency and its fellow mREITs to lock down paper with a sizable yield, the securities already in their respective portfolios are faring well.

In past quarters, the company’s management has pointed to increases in book value as part of its total return — that is, book value growth plus the dividends it’s paid. While this does make sense to an extent, unless American Capital Agency decides to start selling off its portfolio to pay dividends, investors can’t “eat” book value — the proceeds from selling now-higher-priced securities would have to be reinvested in today’s low rate environment. I expect we’ll see a strong showing from the pricing on the MBSes that the company owns, but I’m less enthusiastic about that than its management.

Page 1 of 2
Comments
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

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Top 10 Highest Paying Jobs in the World

Most Expensive Day-Care in New York City

The 10 Cheapest Places to Retire Abroad

Top 10 Most Expensive Luxury Cars in the World – 2014

Killer Small Business Ideas

The 50 Best Personal Finance Blogs

Most Expensive Apartments in New York City

Bloodiest UFC Fights Ever Fought

Most Expensive Rum Brands 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!