Get to Know This 16% Dividend Yielder: Western Asset Mortgage Capital Corp (WMC), American Capital Agency Corp. (AGNC)

In conclusion, despite higher asset yields during the fourth quarter, Western Asset Mortgage Capital Corp (NYSE:WMC)’s results were negatively impacted by higher interest expense, unrealized loss on RMBS and operating expenses.

In comparison, American Capital Agency Corp. (NASDAQ:AGNC) and American Capital Mortgage Investment Crp (NASDAQ:MTGE) reported 27 bps and 11 bps expansions in their respective asset yields during the fourth quarter. While American Capital Agency Corp. (NASDAQ:AGNC) is exclusively invested in Agency MBS, MTGE is classified as a hybrid mREIT. The cost of funds for MTGE increased 13 bps, while American Capital Agency Corp. (NASDAQ:AGNC) reported a 6 bps sequential increase. MTGE reported a two-fold increase in its fourth quarter bottom line, while American Capital Agency Corp. (NASDAQ:AGNC)’s net income climbed from $86 million to $810 million.

Western Asset Mortgage Capital Corp (NYSE:WMC) reported prepayment speed of 3.6%, down 50 bps sequentially. This is even below the CPR of 10% for American Capital Agency. American Capital Mortgage reported a CPR of 6.5% at the end of the same quarter.

Dividends

The company pays a quarterly dividend of $0.9 per share and offers an attractive dividend yield of 16.4%. It also increased its regular dividend 6% from the previous quarter.

Valuations

Western Asset Mortgage Capital Corp (NYSE:WMC) is currently trading at a moderate 1% premium to its book value. Compared to this, American Capital Agency Corp. (NASDAQ:AGNC) is trading at a 3% premium, and American Capital Mortgage is trading at a 1% premium.

Conclusion

Western Asset Mortgage has a diverse investment portfolio, which also includes non-Agency RMBS. Going forward, non-Agency RMBS will continue to enhance the company’s asset yield. However, I believe the company needs to concentrate on taming its operating expenses.

The article Get to Know This 16% Dividend Yielder originally appeared on Fool.com and is written by Adnan Khan.

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