Gary Kain's perspective from the early November conference call is that they can keep the dividend in double digit return for some time to come (see below)
"Now, before I open up the call to questions. Let me quickly summarize how we see the current landscape.
The bottom line is that we remain confident that we can continue to produce attractive albeit lower risk-adjusted returns. Spreads on new purchases are generally around 10 to 20 basis points higher. That change is meaningful, but returns can still be in the low double digits if you buy the right assets. And yes, the prepayment landscapes is considerable more challenging, but as Chris mentioned, given the composition of our portfolio, we remain confident based on our portfolio will be well behaved.
This should not only allow us to maintain reasonable yields on our existing portfolio, but also to minimize our reinvestment needs. But investor should not ignore the positives, associated with the current environment. We believe that the risk to significant book value declines is also lower. Why? Because the Feds large purchases should reduce the likelihood that agency MBS will significantly underperform our swap, swaptions and treasury hedges.
In addition, liquidity and funding risk should be lower as the Fed’s purchases not only directly improve market liquidity but also remove substantial amounts of securities from the hands of private holders, a meaningful percentage of those securities would otherwise have been put on repo by private buyers.
So, when you put all this together, we believe returns can still be attractive especially when you factor in the lower risk quotient and where realistic returns are on other types of investments.
"...let’s look at the dividend, what I want to stress with respect to the dividend is that we have quite a bit of flexibility. Our biggest constraints that we talked about this and in last quarter, are obviously taxable income and undistributed taxable income and clearly, we have a large amount of undistributed taxable income. What does that mean? It means, taxable income is unlikely to be a constraint any time soon with respect to the dividend. The other key thing is that we don’t want to put book value at risk by paying a larger dividend even if we have taxable income to do that. When you look at what’s happened with book value over the last year, okay, were actually since the beginning of 2012, not just this quarter, book values up like 20% despite paying a healthy dividend. So we feel we have a lot of flexibility with respect to book value.
Said in other way, we could maintain the current dividend for an extended period of time, we have to evaluate though against the environment that we discussed, one which is clearly characterized by somewhat lower returns but also lower risk, what the right strategy is for the dividend in 2013 and beyond, and we don’t really, and I think it’s too early to kind of give any more detailed discussion of it. But that’s how we’re thinking about the world and we know it’s obviously an important issue to investors.