One thing that concerns me about AGNC's potential share price movement is the price/book at 1.24. Why is it so high relative to the past and other mREITs? Is this driven by the large dividend or something else, such as confidence in management? If it is driven by the dividend, and QE3 causes AGNC's book to increase and dividend to decrease, I'd expect that 1.24 to drop. Depending on how much, the share price at next ExDiv-1 might be lower than on 9/18.
It seems to me like AGNC has risen fast, and I'm wondering if a "correction" of some sort is in our near future. Of course, things might be upside down, like a run up in share price after a dividend cut. I hear such things are not unheard of. ;)
I have the current book value at $30.41 (This includes the July SPO). The current market price is around $36.66. So the current premium multiple over book is 1.205. The last time I checked the average industry multiple over book was around 1.12. If 1.12 is a good number to use, AGNC is currently over valued by about $2.60 per share. Fair value would be about $34.06.
What, other than the observation, "the last time you checked," that this number was the mean of an unknown collection of companies lumped for unknown reasons into the "industry," would make it a "good number" to use?
And then there's the fact that averages in business metrics are not innately a target for any stock's financial data. Nobody is managing for Price/BV. Somewhat because they have little control over BV when they hold assets of fluctuating value, but mostly because they have zero control over Price.
So you can't tell what equilibrium really is, you can only guess what direction will the price change in response to things you think might affect equilibrium. And it's not always right.
For instance, believing investors would bail due to the promise of lower spreads with extended Fed buying of MBS, I closed out all my options and a third of my remaining shares last week, and have missed at least part of today's rise. Tomorrow the fact that it's the last day cum-dividend may have more to say about it, but today the people chasing the div and hoping the BV jumps faster than the spreads shrink are winning, and I'm missing out on another couple of points of profit...
You are letting simple math slip by you here. First by not calculating the last SPO into your figure (this does raise the BV) Second if they have a huge SPO (100+ mil shares) this quarter the P/B will flatten out.
The Price to Book ratio is still high, but, trust me, management will take full advantage of this to grow the company, and it will make it easier to pay the dividend. It is actually going to make the company shine in the wake of the yield spread contracting. It is a lot easier to pay a 13% dividend than it is to pay a 15% dividend.
I have no doubt that BV will continue to go up, especially when they can raise money via SPO at a 20+% premium. That's not what I have an issue (possibly) with. What I have an issue with is the possibility that such a high PPS/BV ratio is driven by the high dividend, and what could happen if they have to decrease the dividend.
Looking at the pattern in the past 5 BVs, the BVs for Q3 and Q4 would be 30.2 and 31.0. Let's assume that AGNC's BV goes up to 32 by the end of the year instead of 31. However, due to interest rate spread compression, they have to decrease the dividend. IF the 20+% premium is driven by the high dividend, the premium could drop from it's present 1.24 to something significantly lower. NLY is at 1.07 right now with a 12.7% yield. Let's say AGNC's ratio drops to 1.07. At a book value of 32, this would put the share price at 34.24.
That's my concern. Or, perhaps, my question for the board:
Is the 20+% share price premium driven by the dividend? If not, what is it driven by?