I think ol' Gary cut the div just before the fed meeting on purpose so the market would be distracted and not overly punish the stock. We shall see today if that worked.
ARR has cut the dividend again and again.. so what that they didnt cut this one time lol. Not to mention you had a book value of over $10 back in 2008 and what is it now? huh? Whats that? You are down to what? $4 today probably? Meanwhile bond yields are near the all time lows... GOOD LUCK WITH THAT ONE. ARR is the same management as bimini.. where do you think ARR goes? Of course.. 0. Duh.
Relative value to what? If it is relative to the last previously reported book value ARR blows them all away. And ARR maintained their dividend unlike the cutting Kain.
MTGE and AGNC are the top two relative value mREITS right now, followed closely by MITT at #3. I'm proud to say that I called that right, MTGE is my biggest equity position by far.
XX, the UTI is completely removed now and maybe even negative after Q2. They will treat the realized losses and unrealized because they keep rolling anyways rather then take possession.
They are buying MBS at a preset price with the TBA at a forward looking date.
When MBS drops further than their pre-set price, they immediately recognize a loss from the difference when the TBA's come due.
This is what happened to AGNC in Q1.
They took a .55 cent hit to taxable income from TBA losses.
AGNC covered it with UTI.
I think the same will happen in Q2 because in May and June, MBS prices fell hard.
Good news is AGNC and MTGE still has UTI to cover this.
But I think this is going to be it for them.
They will not have enough UTI left to cover a huge TBA hit in a quarter.
And thus the risk.
There is upside as well.
If MBS prices hold, they will do great on the TBA's.
They will pay the drop as income even if the TBA shows realized losses. Why? Because those losses are taken yeah, but they rolled again the next month which creates another net drop. So The realized losses are the same as unrealized to them. I don't think they will change the dividend because of that.
I'm talking about the dividend itself IWB. Not book.
Coming out of Q1 MTGE has 4.5 Billion in Net Long TBA and 6.5 Billion in MBS.
What happens if in Q3 interest rates go up again causing MBS to go down?
Their TBA's will take losses vs the taxable income.
Where are they going to come up with the money for the dividend if they have further TBA losses?
That's what I mean by RISKY!
It's quite possible if things went bad they would have to cut the dividend for a quarter to squat.
This is just the beginning of the separation I think anyways. Everyone keeps talking about higher rates but if they does start to manifest then we will see even more non agency in MTGE's portfolio. However, I am not so sure we will see higher rates for some time. I think that this may just be one of the many scares before we see an uptrend in rates. No matter what happens, MTGE will outperform AGNC thanks to its ability to diversify from the agency space. Non agency I expect will do very well over the next couple of years as housing recovers.
if rates tail off from here or (more likely) mbs spreads vs. treasuries come in a bit - those tba trades could produce taxable income not losses. of course - we also don't know what mbs prices were when they initiated the trades. lot's of unknowns - including Fed speak tomorrw and a possible mkt selloff after the end of the qtr. The world mkt is hitting the skids and many/most predict that s&p earnings may have peaked. could portend a mkt pullback over the summer causing a bit of a rally in bonds/mbs and - in any event - reits and dividend stocks.
I disagree at this point xx, based on the data we got out of AGNC in the MS presentation I think that hedging going forward will be pretty effective at protecting book value. Sadly, we will not see the same recovery as the decline should rates move lower again. And that was said in the presentation due to the extra hedging they added. I think book is very well protected right now from further declines.
IWB, they are cheap but they also hold the most risk with the TBA's.
Any spike in interest rates will be catastrophic for MTGE with those TBA's.
We'll see how much UTI they have left after Q2. But I'm thinking it's not going to be a lot.
A TBA loss in any quarter beyond Q2 will translate into a dividend cut for that quarter because they will not be able to make up the taxable income loss.
Or perhaps they will tone down their TBA action after Q2 which would mitigate the TBA risk.
At that adjusted stock price it's a 16.4% div yield and roughly a 13% discount to quarter end BV AFTER mortgages have already sold off a ton and rates backed up a good deal. Plus the duration gap is still pretty low with modest extension risk if rates rise 100 bps or even 200 bps given the big hedge book.
Sentiment: Strong Buy
and - based on Gary Kains comments last week - both mreits are now positioned for higher rates and higher spreads going forward.