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New York Mortgage Trust Inc. Message Board

  • anitdua anitdua Sep 24, 2012 10:38 AM Flag

    How are these Dividends sustainable ? Is this a good buisness model ?

    From an article on SA today -

    How are these dividends sustainable I wonder ? For instance, all the three below have been paying out more money than they get in. Is that not a red flag,besides they have significant debt too ? Could someone please comment. Thanks

    NYMT - Twelve trailing months earnings per share reached a value of $0.59. Last fiscal year, the company paid $1.00 in form of dividends to shareholders.

    CIM -Twelve trailing months earnings per share reached a value of $0.52. Last fiscal year, the company paid $0.69 in form of dividends to shareholders

    NLY-Twelve trailing months earnings per share reached a value of $0.52. Last fiscal year, the company paid $0.69 in form of dividends to shareholders

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    • jackhiller@ymail.com jackhiller Sep 24, 2012 11:13 AM Flag

      The article you reference was written w/o the slightest understanding of the bookeeping for the MREITs. REITs and MLPs are required by the SEC to use GAAP accounting, even when mark to market book values distort their true operational capabilities and performance. The best guide to how well the MREITs are performing is actually their dividends declared and dividend trending patterns.

      The agency backed MREITs are under pressure from QE3 by reducing their profit spreads by lowering the mortgage rates, with the policy of keeping interest rates low into the indefinite future to try to avoid deflation and to prop the economy while fiscal deficit spending is out of control. While QE3 is reducing the profit spread for the agency backed MREITs, the hybrids such as NYMT, MTGE, and WMC are buying risk adjusted commercial mortgages with "very" high profitability. Also, as the mortgages rates decline, portfolio value, the book vaue equity used to borrow near zero interest rate funds for mortgage investing, increases, permoitting the MREITs to buy more mortgages, thus compensating somewhat for profit spfread decreases.

      The current QE3 policy transforms otherwise risky MREITs into stable investments while the economy continues to perform poorly.

      Sentiment: Strong Buy

    • Here is a generic answer that may or may not apply to all mortgage REITs. But, should help with answering your question: (The answer is basically Leverage)

      ARMOUR leverages its Agency mortgage investment portfolio with borrowings, which are generally short term and are secured by ARMOUR’s investment securities. The broad target leverage ratio is six to ten times debt to equity based on ARMOUR’s permanent capital equity base (additional paid-in-capital), though ARMOUR is not constrained by that range.

 
NYMT
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