The report will show declining spreads and a dividend cut coming. I give AGNC a $26.50 target price. and I have sold my shares today. If I am wrong I will be glad for everyone else, but I am warning you of some serious pain to come. I am not the type to short, so i am out and don't plan on getting back in.. even at $26.50. I like the hybrids though.
"CONSTANT PREPAYMENT RATES The actual CPR for the Company's investment portfolio during the fourth quarter was 10%, an increase from 9% for the third quarter. The most recent CPR published in January 2013 for the Company's portfolio held as of December 31, 2012 was 11%. The weighted average projected CPR for the remaining life of all of the Company's agency securities held as of December 31, 2012 was 11%, a decrease from 14% as of September 30, 2012 primarily due to the combination of an increase in long-term interest rates, higher concentration of lower loan balance and HARP security holdings and a decline in the weighted average coupon rate on the Company's portfolio during the quarter. The Company's net TBA dollar roll position was concentrated in low coupon securities and is not included in the CPR calculations above."
But overall they did not do as bad as I expected. Based on core earnings I think we are looking at a 0.90 dividend in Q1. So at $31 per share that's a yield of 11.6%. It's not bad, but i'd rather have that money invested in hybrids or BDCs. I prefer BDCs right now, due to the nature of many of their investments they are positioned to increase dividends over time due to the floating rate securities they hold and overall portfolio run off being reinvested at higher interest rates. If you feel you really must have AGNC in your portfolio, consider buying in around $28 or $29 on a pull back.. or consider getting short the $28 or $29 puts. That will give you some cover as the book continues to come down due to higher interest rates in the future.
They've already paid the Q4 dividend at $1.25.
Q1 spreads are significantly wider than the spread move from Q3 to Q4. That, plus excess of over $2 earned/unpaid and they can 'eat' the 36 cent differential between spread income and dividend. They also earned more money than that selling into the fed's higher prices.
Since they tend to pay the same dividend all year long (they sometimes earn more or less and had carried a lot into the quarter from prior quarters) I'd say they could cut it, but they don't have to. Q1 is already looking like the spreads easily support 1.25. My guess is it's a coin toss.
I'm waiting for the con-call and reserving judgement. I think we have a slightly soft day coming tomorrow but certainly nothing to panic about.
I expected a soft quarter as did most of the market. These numbers are actually quite good compared to what I was expecting, and we have a potentially explosive quarter on-tap for next May.
Where are you? Still banking on a 26.50 target price? I've been following AGNC daily for three years and , IMO, and apparently many others, it's the sweetest ride in my barn.
I just covered my March Short Puts this AM for a one day 40% profit. The MMs have taken the dividends out of the Put premiums for March, so I am moving on to June. Apparently they have woken up to the high likelihood that( as I have been saying), Mar OPEX will be before March EX .
Do you think they read my posts?...;-)
Good luck to all longs....