The dividend is ultimately likely headed to around $1.00 but it still equates to a pretty attractive 13% yield. Remember that prepayments are pretty low on AGNC's MBS book so premium amortization and reinvestment risk is not as high as at some other MREITs like NLY. AGNC could also take leverage up a bit (there is probably room to take it to 8X from 7X currently if conditions are right). I think the stock is largely pricing in the $1.00 dividend run rate. Below BV it's still pretty attractive.
I think the question will be what happens to the book price if the div goes down. Can you see AGNC maintaining the book price of 32.50, cutting the dividend to .90 and having the price go to 27? How would that compare to MTGE?
Significant paring of dividends such as that never result in a rally, unless the market expected a drastic paring instead, and the share price was already residing in concomitant regions. The price action is reflecting only modest to none at all in reduction. So a div of your suggestion would result in a share price below 26.
With better rates coming, I would not be surprised if Kain is selling inventory for income to maintain the 1.25 and pick up better inventory after a secondary, if necessary. I am assuming that with recent dips, he has already made his buybacks. Buyback activity with marginal differentials will only add pennies to book value, but it retracts the float and ameliorates the loss of core earnings.
I think the price action before the fiscal cliff was predicated by that thought ($1.00 dividend in Q2-Q3). With the FC resolved (for now)- markets got a sugar high, including our AGNC. I sat on sidelines because of the risk.
Now we have the debt ceiling to resolve and the added factor now the fed may end QE*. There is alot of variables out there to weigh.
I am being disciplined- I wanted to jump on the AGNC ride to 31 but forced myself not to chase it. I am hoping for a pull back as the Republicans look to spending cuts as a negotiating lever for the debt ceiling. I can not see how they can position themselves otherwise and the president's hand is limited now that taxes are going up a bit (yes I expect more tax hikes in the need for the spending cuts-debt ceiling).
I think we are setting the stage for a long term bull market if we can get our fiscal house at least on a path for long term solvency. I am looking at BDC and High Yielding Shippers in anticipation of banks being too tight as the economy expands and the need for more raw materials being shipped, respectively.
There was another post i agreed with- over time- AGNC shareholders want ~14% so 27-27.5 would be fair at $1.00. Likewise- $0.80 divi is a $22 stock before I would go long. For me it's all about BE and risk.