In the last 2 quarters CMO has dropped their dividend 25%, CYS 20% while AGNC has continued to pay 1.25 and dropped 0% over the last 2 quarters. If the current trend continues, cuts could meet or exceed 30% by Q1. I know it is still early in the reporting period, but the trend seems pretty clear. If AGNC decides to "synch up" as they have in the past, a 30% drop would put the dividend under .90 per quarter. Considering core income is currently coming in below that .90 per quarter there would still have to be "other income" to make up the difference even at that reduced dividend rate.
Just something to consider as AGNC considers what dividend they feel they can support heading into Q1 2013. These guys are good, but they're not miracle workers.
Totally on the same page as you (without even considering CMO/CYS).
AGNC mgmt likes to keep its div payments consistent for a full year, and then establish a new quarterly div in Feb that should be sustainable for the year to follow.
Dec 2012's $1.25 is supported by current undistributed income and completes this year's consistent string of $1.25 div's. Come February though it's pretty hard for me to see how the div doesn't get cut to below $1, maybe somewhere around the 85c - 90c range.
Just my 02c of course.
February can't come too soon for me, I would love to get the div reduction out of the way & the new level of "sustainable div" established (with potential corresponding stock price adjustment) so I can get back in this one and start making $$ on it again.
In the short term I wouldn't rule out a run-up or sideways action through to the (TBD) Dec ex-div date if no major market pullback; I would just caution people from being long from ex-div through Feb.
In the real short term, I will cross my fingers that tomorrow the Fed doesn't announce additional MBS purchases. Per last conf call I know AGNC has been doing its best to maneuver its portfolio to avoid impact from the Fed, but that doesn't mean a Fed action tomorrow couldn't inspire a little indiscriminate mREIT pullback (while various people here are playing a Dec div run).
The last FOMC on oct. 24, it didn't have a great impact on price. Given the PPS and the fact it is trading lower below book, it has to be priced in. It's a well known issue, and most economists are expecting more purchases, but I suppose there is always some hope. Even management thinks qe3 continues with the greatest impact on prepayments.
Management has already said it will be looking at the 2013 dividend payout, so investors already know the dividend will fall. As long as the fed prints money, thinks that lower rates are the key (along with employment) to an improved housing market, this program to hold up the housing market by printing money will continue. There is also the possibility the treasury is trying to get its hands on 67% of the MBS pools, so it can cancel the government guarantee and modify loans. A bit of a conspiracy, but I have never seen this type of mortgage subsidy. As long as they are a 67% investor in a pool, they can direct the services to do what they want.
They are also likely buying back their shares at well under book value, as well as selling some assets at a large profit. In addition, mortgage rates seem to have actually stabilized or risen in the past few weeks. The Fed seems to have hit the wall in how far the market will allow them to drive rates down.