Its to bad NLY is weighing on this reit. AGNC doesn't have the same type of MBS's in their portfolio as NLY, nor did they have to finance risky high coupon mortgages as NLY did during the bubble years. Recall the past 5 years AGNC started up in 2008 when rates plummeted, they bought up MBS at higher rates and have been aggressively funding them with lower rate financing and increased their interest spread over this period. Now the trend for higher net interest margins has tapered off, but funding rates remain low.. This low rate environment gives AGNC the additional leverage to sell its portfolio at nice gains. Something they don't do to excess. Its an interesting dichotomy. The market here is pricing AGNC between its high dollar valuation of its EPS to its low dollar valuation of FFO.
AGNC projects out to have an EPS at year end of $10.92 yet they project out to pay a dividend of just $5.00 per share.. The threshold for retaining a reit status mandates a payout of 90% of its net taxable income of course excluding any capital gains and non cash gains from the equation, we then bark the dog down to the $5.00 and up area for distributions.. The case could be made for a special one time dividend, but instead, this reit now has the engine to plow those capital gains back into it's investment strategy without having to float secondaries.. and this is the good side, the side the market has undervalued.
AGNC has a projected annual return on equity of 28.67%, theoretically if this reit were to cash in its gains on the portion of its eps not paid out in dividends( $10.92-$5.00= $5.92 per share) it has $5.92 share in it which to grow shareholder values, hence management has correctly interpreted the cycle and is buying up is undervalued shares on the open market. This strategy will realign long term growth in the dividend. Less shares in the market less total dividends to payout. Shareholders who commit to long term here are getting in at the right time.
The valuation earnings per share for AGNC comes in at $76.66, and is very undervalued in the current market.
Its to bad NLY is weighing on this reit. AGNC doesn't have the same type of MBS's in their portfolio as NLY, nor did they have to finance risky high coupon mortgages as NLY did during the bubble years.
NLY is turning into a head scratcher for me.
It's a terd, but I was still expecting it to rally at least a little bit and maybe be around $15 by now.
Still seems like a potential option play going into he EX.
If your willing to fork over for ITM 14's for Dec or Jan, they look cheap.
OTM Dec $15's are 6 cents.
I picked up 20 NLY calls about 2 weeks ago which are now down about 20%.
Pondering weather to pick up some more.
OT, I sold 35 of my 60 NYMT calls this morning.
And have 25 JAN $5 left at 1.20.
xxavatarxx - I agree with you on NLY. I have some shares and I'm down on those and was looking to add more but I like the idea of the Jan 14's instead. It is the weakest of the group and should see some sort of bounce here.