It appears that the dividend will have to be cut as it is not sustainable. If the yield curve continues and QE3 happens, I would imagine that dividends may need to not only be cut but possibly suspended. Thoughts? Just how bad is the yield compression going to get? 10 year treasury under 1%?
This analyst thinks the divy is sustainable and may actually be increased:
"Nomura Securities Expects Sustainable Dividend From American Capital Agency (AGNC); The One and Only
10:35 AM ET, 07/18/2012 - Street Insider
Nomura Securities maintains a 'Buy' on American Capital Agency (NASDAQ: AGNC) price target of $33.00.
Analyst, Bill Carcache, said, "AGNC pre-announced 2Q12 earnings and select metrics after the market close on Tuesday. Overall, the company s performance this quarter was solid. AGNC continued its long streak of consecutive book value growth (albeit at a slower rate vs. previous quarters) and generated taxable income of $1.60, well in excess of its $1.25 dividend."
"AGNC is the only stock under our coverage that we believe is well positioned to also deliver positive absolute returns under highly stressed macro conditions. By the same token, we also see AGNC as outperforming in a more benign environment where the global economy continues to trudge along at modest positive growth; under this scenario, we d expect AGNC s dividend to likely increase above the current $1.25 level."
For an analyst ratings summary and ratings history on American Capital Agency click here. For more ratings news on American Capital Agency click here.
Shares of American Capital Agency closed at $35.29 yesterday, with a 52 week range of $22.03-$35.58."
Are you crazy or just short? Interest spread income was $.92; GAAP income was $1.60 and they have substantial undistributed gains. Don't think they will cut the div for sevreal quarters, if they cut at all.
I have a concern. You say the spread is $0.91 as if that is OK. On page 22 of AGNC's March 2012 10Q they say that the average spread is $2.31 and they define the spread in note 7 below as.
7. Average net interest rate spread for the period was calculated by subtracting our average cost of funds from our average asset yield.
Somehow it concerns me that your $0.91 number is 2.5 times lower than the number in the last 10Q. Am I comparing apples to apples or is there something I have missed? Are their hedging losses in your number?
Link to last 10Q
I am not short. I am just trying to get an understanding of how future events are going to have an effect on the spread and the sustainability of the distribution. 17% over book seems pretty steep. CYS looks much cheaper. Are the assets the same?
"It appears that the dividend will have to be cut as it is not sustainable. If the yield curve continues and QE3 happens, I would imagine that dividends may need to not only be cut but possibly suspended. Thoughts? Just how bad is the yield compression going to get? 10 year treasury under 1%?"
"instantwinbutton", you sound so foolish and desperate. A silly posting like yours is symptomatic of someone who has significantly screwed-up. Perhap you need to take a break and rethink matters. Good luck.
I have not looked into the sustainability of the dividend however I don't think the amount of the dividend is all that defines what the stock price will be. It has to do with risk vs reward and the availability of alternative investments that can yield about the same.
When I first started investing in AGNC, about a year ago, I was leery at first even with the 20% dividend because we had just been in a housing crash and many CDOs had lost a large percentage of their values. I did not want to become such a CDO bag holder. It was only after I read their quarterly report and realized that they were investing in agency paper only that I dove in. I think that this reluctance has kept many investors away. But lately I think people are starting to understand agency mREITs a little better and as a result demand has increased. Now it is no longer necessary for the dividend to be 20% in order to attract new investors.
I won’t pretend to understand what the best valuation metric for mREITs is. But I think that if the dividend is lowered by some that it will not be the end of the world. The stock price may drop by some or it may not drop by very much at all. It all depends on the impact that this has on demand for the stock and as long as investors see agency mREITS as the best way to get a return on their money at a reasonable risk verses their alternatives they will keep buying. Keep in mind that the economy is slowing down which is signaling that we are entering another recession. Dividend stocks are usually considered safe havens under such conditions. This will only increase demand for mREITs more.
It's not so much that investors understand mReits better now as it is that AGNC, with its high dividend yield, is one of the only places they have to go when the Dow, S&P500, and NASDAQ indexes and stocks are losing money. Notice, like today, whenever those major indexes drop significantly, AGNC rises in price. That's a pretty clear indication that investors are fleeing big name stocks, even if only temporarily.
NLY managed to weather two yield curve contractions to zero without suspending dividends. AGNC has managed to squirrel away undistributed income for several quarters to cushion the drop in net yield spread.
Looking forward what is scary is the Euro demand for high quality collateral, which puts MBS pretty high on their list. On the short end lending is also frozen unless it's collateralized. So not only are MBS yields being suppressed, so is the cost of repo borrowing. The day these two trends unwind is gonna be scary.
Will the yield spread contract to zero? Sure, it has in the past and can for as long as the Euro zone continues it's slow motion collapse.
Still, Agency mReits seem to be sitting is a sweet spot for both the repo and MBS trends, but with the yield spread continuing to contract earning have to decline.