Can anyone explain why NLY is only earning 1.45 cents per share and is able to pay out 1.80 per share. it does not make sense that it can continue to payout more than it takes in. Like wise with AGNC it is only making 2.46 and is paying out 5. What am I missing
Accounting for an MREITs is complicated to say the least...you ready? NLY buys mortgages at a premium (above par)...and amortizes the premium over time. A non cash expense like depreciation for a firm that owns a farm tractor. MREIT's report earnings as if they were a regular corporation. So you need to follow cash flow, not just earnings. Cash flow statement is the actual cash flowing thru NLY.
Another biggie is the accounting on interest rates swaps. NLY uses them to hedge interest rates rises on the bonds they own. As of a number of years ago the accounting standard is mark gains and losses on derivatives (swaps or hedges) to earnings per quarter. So if they sell a hedge on interest rates and rates go down, the loss on the hedge is recorded as a loss. But on the other side of the coin, the bonds they own are not recorded each period for gains and losses until redeemed/sold/etc.. So it skews earnings a lot. It makes the earnings statement almost worthless. GAAP accounting stuff.
Again forget the earnings statement, use the cash flow statement.
It is from years ago. I have over time, having taken the knocks along the way and hopefully learned, become relatively successful trading stock using technical s. I don't do fundamentals as such. But if I want to park some of the profits into something like NLY I need to for the first time understand their cash flow. Otherwise I will have to do the usual stop loss, and trading targets etc, which I only do when I trade rather than invest. I started trading around 1996 along with everybody else, and lost my account a few times until 2003, but have managed to trade it since then, got out during the 2008 meltdown and am still in one piece today.I am a lot older and a little wiser. I have been looking at REITS for a while but I am trying to find a good reason why I should invest an d that is what gets me, I understand the interest rate spreads and leverage bit, but they still payout more that they make?. That is the bit I don't understand