Western Asset Mortgage Capital Corp (NYSE:WMC)’s CEO, James Gavin, bought almost 5,300 shares of the company’s stock on December 4th at an average price of $20.74 according to a Form 4 filed with the SEC. Insider purchases are bullish signals and we think that this is because insiders should resist buying more shares of the company’s stock- preferring instead to diversify and invest in unrelated businesses- unless they have a strong expectation that the business will do better in the future. Of course, the CEO of a company likely also has more insight into how it will perform going forward. Our database of insider trading filings shows that Gavin had previously bought shares in May of this year at an average price of $18.68; the most recent filing shows that he owns a total of close to 16,000 shares, so this most recent purchase was a substantial increase in his holdings.
The company is a real estate investment trust which invests in residential and commercial mortgage-backed securities. Our records show fairly consistent insider buying at Western Asset Mortgage Capital Corp during 2012, including a number of purchases by a Board member in November (see a history of insider purchases of the company’s stock). As might be expected for an REIT, the dividend yield is high- the two dividend payments since the May IPO (the stock is up 10% since that time) were of 38 cents and 85 cents, while the stock price is currently a bit above $20. Clearly the dividend payments are not consistent, but a quarterly payout of, say, 30 cents would give a yield of 6%. If 85 cents becomes a fairly regular quarterly payment, then the yield would be over 16%.
At a market capitalization of $500 million (the average daily volume over the last three months has been about 760,000 shares, so we wouldn’t be worried about liquidity), Western Asset Mortgage Capital Corp trades at less than half the book value of its equity. In comparison, larger REIT Annaly Capital Management, Inc. (NYSE:NLY) trades at a P/B of 0.9, while Newcastle Investment Corp. (NYSE:NCT) and Redwood Trust, Inc. (NYSE:RWT) are priced at a premium to book value. As REITs, these companies also offer high yields; Annaly and Newcastle seem to pay 10% or higher, at least going by recent payments, and all three have a longer operating history for what that is worth.