American Capital Agency Corp. (AGNC) Dividend Cut: Should You Worry?

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In short, American Capital Agency has taken steps to ensure that its book value and future dividends are secured.

Other dividend announcements

New York Mortgage Trust, Inc. (NASDAQ:NYMT) and Hatteras Financial Corp. (NYSE:HTS) were the other mortgage REITs that declared dividends yesterday. Both are hybrid mortgage REITs, and given the volatility in interest rates, hybrids are preferred over the pure-play mREITs. That’s why they both maintained their dividend distributions, while American Capital (pure-play) slashed its dividend rate.

New York Mortgage Trust, Inc. (NASDAQ:NYMT) is a hybrid mREIT. At the end of the first quarter, only 30% of its equity was allocated to Agency residential MBS, while it also invests part of the remaining equity in distressed residential loans, multi-family CMBS etc. This variety of assets allowed the company to maintain its dividends. It declared a dividend of $0.27 per share for the second quarter, in line with the first quarter shareholder distribution. The stock now yields 15.3%.

Hatteras Financial Corp. (NYSE:HTS), another hybrid mREIT, maintain its quarterly divided rate of $0.70 per share for the second quarter of the current year. The stock now yields 11%. However, this is not the only positive news from Hatteras Financial Corp. (NYSE:HTS). The company’s board has authorized a stock repurchase program to purchase up to 10 million common share of Hatteras Financial Corp. (NYSE:HTS). This will have the effect of increasing the stock price further. The company benefited significantly from the design of its investment portfolio. Around 90% of its entire portfolio is composed of adjustable-rate mortgages (ARMs), which adjust their payments to the more current interest rates at the next reset date. The remainder of the portion is the 15-year fixed rate security. It has no 30-year fixed rate MBS in its portfolio, which are considered highly sensitive to changes in interest rates.

Conclusion

The future might still not be very rosy for the mREITs sector, particularly the Agency mREITs. However, American Capital Agency has taken steps to protect the further decline in its book value and dividends. Having said that, hybrids remain my favorite mREITs under the prevailing volatile conditions.

Adnan Khan has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Adnan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article American Capital Agency Dividend Cut: Should You Worry? originally appeared on Fool.com is written by Adnan Khan.

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