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Western Asset Mortgage Capital Corporation Message Board

  • abcs.learning abcs.learning Dec 26, 2013 12:03 PM Flag

    My WMC story

    Buy 4000 at $17 in a 50% margin account ($34,000 invested). Margin rate per year is 1.59%. Collect 2.35 this Q and-then .80 + .80 +.80 +.80 over one year = 5.55 x 4,000 = $22,000 (-$540 margin interest) on a $34,000 investment. That's a one year return of 63% , and today the stock is near its all-time low. Maybe a little price appreciation too? Looks solid to me.

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    • Everything going as planned thus far. Today may be the "coming out" party as the stock begins its eventual climb to $16. My NLY investment (same plan, with 4k shares originally) is already up 16% in 4 weeks (includes the coming dividend) since my $9.89 purchase before the ex-dividend date in December, 2013.

      Sentiment: Strong Buy

      • 1 Reply to abcs.learning
      • It's mid February and the plan is going well. I have changed it a little, combining now 2,000/ea of WMC, NLY, and REM. If no dividend cuts are afoot I will make $3,160/qtr, or $12,640 in 2014, on the 6,000 total shares. But it will be slightly higher because I will be reinvesting the dividends (on margin) and purchasing about 150 shares of each company each quarter; so by year's end I could have 2,600 shares in each company.

        I have a nice capital gain in NLY ($2,000), WMC ($2,000) and REM ($2,000) thus far, for a $6,000 profit on my original $36,000 investment (16.5%). I also collected the $9,400 dividend from the December quarter from WMC. Do that's $15,400/$36,000; it's only February, for +43%. The WMC shares I received after the December quarter were priced at $14.68, which is kinda nice, considering the stock is at $16.35 today.

        I know all these figures are a little confusing, but I thought that December dividend from WMC was a free gift and a great opportunity to start a savings plan. So I did it. These kinds of opportunities only come along once in a blue moon, and this was a good time to begin. Several posters in December and January said the numbers and the estimates were (or would be) bogus, but I am just relating what has happened thus far.

    • Hey abcs, been watching this guy for some time because of the divi only. Not too savy in stock market investing so I have lots of questions and time to learn, yeah, kinda the beginner and want to make a smart move before going more risky. So can you entertain a few questions…?

    • I have tried a little different wrinkle this morning. Bought half (again) of my position at the lows (after the ex-dividend date), and then hold that portion til the stock recovers pre-ex-dividend (or nearly so). In this way I am trading both for the quarterly dividend which I will reinvest (on the first 4k shares), and the available lows in the stock after the dividend which I will hold for at least $1.50 share in capital gain (on the second 2k shares). The arbitrage could net me an extra $12K/year in capital gains (2k x $1.50 x 4)

    • please tell me where I can obtain margin money at 1.59% per year ????????

    • your thinking is very flawed.

      why don't you just buy 17 and collect 2.35 and earn 14% for 1 day - ha ha

      I mean that's how silly your statement is

      ive matched it with a flawed stupid statement so you can see how wrong it is.

      start with a good premise or say something very off the wall so that you can see the fallacy in that statement and then work away from that statement.

    • The risk to your "story" is a deteriorating BV. ALL mREITs pps track somewhere above and below this value, just like bonds. WMC has one of the most aggressive portfolios and leverage, composed of mostly 30 yrs and a high 9x leverage. 30 yrs now pay the highest yields but as recent history has shown, rising long term rates cause the value of these holdings to decline faster than 15s, 20s and adjustables. Thus WMC can payout higher dividends, but its core holdings decrease in value faster than other mREITs. Like most mREITs, WMC performed well during declining interest rates earlier this year, but lost considerable BV after the mid year FED announcement of pending QE3 tapering.

      If WMC mgmt miscalculate their hedging (like AGNC), it can be disastrous. Current dividend is .70 (based on dilluted shares from special distribution) and that is the BEST case scenario. It would not take much of an interest rate rise to wipe out most of this dividend. Your dividend income (if in a non-taxfree account), will be taxed as ordinary income. Your 2x leverage, while doubling your dividend income and tax liability, can also double your BV (and stock pps) decline.

      If you are interested in large, leveraged potential returns, you might look at MLPL (oil and gas) and BDCL (business development), and possibly MORL in the mREIT sector.

    • UH bad math brother--you are not going to get $2.35. You are going to get $.80 and 400 shares and you are not going to get .80 per quarter, you're gonna get $.70 and you are going to pay taxes on $5.15 ($2.35 + $.7 * 4), and the stock is not trading at it's low--adjusted for the stock issuance, the stock is trading at $16.50. Sell your 4000 shares now and buy them back around $14 or lower (which is BV now) and you might do OK.

      • 3 Replies to wahoo99421
      • What if he holds it in his Roth as I do? See Ma "no hands".

      • So you assume they will suddenly NOT do what they have done for the last 2 years: and I assume they WILL. Either of us could be wrong, of course. I'm just betting they continue business as usual.

        Lot of negative press because the team managing this REIT has done so well. Sign of something "fishy", instead of a sign of skill with options and hedging.

        Payment: why would I care if it's stock or cash?Either is convertible to cash or stock.

        How do you know the dividend will be $0.70, and not the $0.90 it has been for almost a year (and with a 4th quarter kicker each year too)?

        The following is a rough plan for growing a position in WMC. It begins with 4,000 shares; a dividend 15% less than 2013 (at $0.80/q for 2014); NO capital gain, & margin cost of 1.59%/year.

        1) When I am paid the $9,400 for Q4 dividend, I'll buy an additional $9,400 of WMC in my margin account. Probably cost me $15.70/share, and I'll buy another 1,200 shares. So heading into Q1 I'll have 5,200 shares.

        2) If they go for an .80 dividend for Q1, I'll collect $4,160 on my 5,200 shares. I will lever it to buy $8,320 of WMC; and at $16/share, another 520 shares. So heading into Q2 I could have around 5,720 shares.

        3) If they go for an .80 dividend for Q2 I'll collect $4,576 on my 5,720 shares. I will lever it to buy $9,152 of WMC; and at $16/share, another 572 shares. So heading into Q3 I could have 6,292 shares.

        4) If they go for an .80 dividend for Q3 I'll collect $5,033. I will lever it to buy $10,080 of WMC; and at $16/share that's another 675 shares. So heading into Q4 I will have 6,967 shares.

        5) If they go for an .80 dividend for Q4 I'll collect $5,580.I will lever it to buy $11,160 of WMC or 725 shares, to give me a total of 7,692 shares.

        In one year from this January, I may almost double the share count and lower my cost basis (which includes the margin interest cost) to $4.55/share. A share-cost basis of $4.55 making over $3/year in dividends? Sounds good to me.

      • Really should not assume the dividends going to remain in the .70 area for a full year in a rising interest environment. Even with reits in free fall from the highs it's hard to figure out how a buy & hold is a smart option today. Buying for the dividend run up and sell day before EX, still remains the best and safest play by far. Someday buy & hold that may work out well, but not today, and when it does don't expect double digit yields.

    • Plus I re-invest those dividends, multiplying the return further and lowering my cost basis in the stock.

 
WMC
9.43+0.10(+1.07%)Jun 27 4:02 PMEDT