13-16% yield, discount to BV, low CPRs, great management, fed buying supporting MBS values/book value
Let's put things in perspective:
Yes, spreads are tighter, which means reinvestment yields are lower, but AGNC has a low CPR portfolio with less of a need to reinvest frequently. In addition, current/low coupon MBS are less likely to prepay rapidly and are the very instruments the Fed plans on buying aggressively thus boosting their value.
AGNC is in a great spot. A relatively stable BV given higher pay-ups for prepayment protected product (70% of the portfolio) and upside from current/low coupon MBS that the Fed plans to buy aggressively, plus an aggressive hedging strategy with 80+% of the portfolio hedged with longer duration swaps and other securities designed to protect BV. The dividend is likely to migrate to $4 from the current $5 over time but that still represents a 13%+ yield in a 0-3% interest rate environment. At a meaningful discount to BV you also have some appreciation potential in the stock (or some downside protection).
Gary Kain was the genius who ran Freddie Mac's portfolio biz (and remember it was the non-agency/credit side that blew up Freddie--not the agency MBS side). He has been a masterful manager at AGNC, driving BV growth and industry leading dividends on a consistent basis.
Good time to own this one, especially with a juicy dividend coming 2 weeks from now. You are essentially buying today at an adjusted $29.60.
AGNC is also off of its 3rdQ/all-time high of 36.68(EOD), by a whopping 16.9%.
Of the REITs I have recently payed attention, AGNC is furthest from its high:
AGNC 36.68 high, 30.84 today, Down 15.92%
MTGE 26.56 high, 24.93 today, Down 6.54%
AMTG 23.45 high, 21.91 today, Down 6.57%
WMC 24.45 high 20.66 today Down 15.5%
The fact that AGNC has the best management of the lot, and its pps was beaten down somewhat recently more than other REITs, I think AGNC has the most %rise through the ex-date from here than those many other REITs in the market will have.
Cogent analysis of AGNC. Also consider that their Board has authorized buying back $ 500M shares of common stock, expiring YE 2013, when the share price falls below book value, approx $ 32.50/share. This provides some downside protection for the stock. Your discussion is very complimentary to my companion piece written several hours ago on the impact of recent Fed policy on MREIT's.