In AGNC 1q13 ER conference call http://seekingalpha.com/article/1400301-american-capital-agency-s-ceo-discusses-q1-2013-results-earnings-call-transcript Gary Kain makes it clear during the Q&A portion of call that he thinks most of the damage has already been done to taxable during Q1:
"...many of the TBAs that create the realized gains and losses actually have already been rolled to the next quarter. So it's not completely variable with respect to what happens in the market. Again, a good chunk of those levels have been
locked in for the quarter, so to speak."
He also points out that such negative impacts to taxable from pairing off TBA's go the other direction during bull flattners, boosting taxable in a manner that I would describe as temporary fluff:
"....in Q1, you had an
environment where just the price of the underlying irrespective of the dollar roll level was declining and you were locking in these lower prices from the
perspective of realized losses. ...In the case where mortgage prices are going up, then you will be in a situation where you will actually end up with more taxable income than you
probably should in that environment to or then what’s actually implied by the drop and so you will have the reverse of that scenario."
In terms of absolute rates, and in terms of payups market prices are now right back around at the levels that we were in 1q12 when the div was reduced from $1.40 to $1.25. And our BV is now right back around at the level that it was in 1q12.
(to be continued)
I don't think the dividend is sustainable in AGNC. That said, I do think AGNC will hold the $1.25 dividend for this and next quarter. They sure don't want to toss another log on the fire. When insiders start jumping in with serious buys, then I am going to buy back in. So far this is not happening! Just a bad time to be trying to second guess this sector and pick bottoms.
hi tay - a very, very excellent technical/accounting perspective analysis. however, much like the previous poster stated, with the markets in a risk on momentum, the emotional psyche the average retail investor MAY overcome their logical reasoning. at least until the market takes a downturn (IF it actually does) .
just my 2 cents
GL2A AGNC longs
Thanks Walrus8, I certainly hope you're right, although I provide free in depth analysis I am actua;lly happiest when it sells off. The cheaper the better for my dividenders. I bought more MTGE at the ask today, but my $24.51 AGNC limit buy order went unfilled.
Now to the point, is the $1.25 dividend sustainable? If I were trying to convince the board of directors that it is indeed sustainable I might present the following analyses:
1) TBA Adjusted Taxable EPS. Adding back the 55 cent hit to taxable from TBA pairups puts taxable EPS at $1.05 in 1q13. We'll call this "TBA adjusted taxable EPS" It's hard to estimate and it's not disclosed, but I think doing the same adjustment to 4q12 would ding 4q2013 taxable EPS by say 25 cents, which puts TBA adjusted taxable EPS at $1.96 in 4q12. Summing the two gives $3.01. If they continue at that rate in 2q13 and 3q13 the TBA adjusted taxable EPS for the first 4 quarters after we partially re-positioned into TBA's will be $6.02. So from a TBA adjusted taxable EPS perspective $1.25 is clearly sustainable.
2) Dollar Roll Adjusted Net Spread Income Per Common Share (DRANSIPCS). DRANSIPCS in 1q2013 was $1.18=$0.78+$0.40, unchanged from 4q2013 DRANSIPCS=$1.18=$0.89+... If that continues at that rate in 2q13 and 3q13 then DRANSIPCS for the first 4 quarters after we partially re-positioned into TBA's will be $4.72=4*$1.18. Than exceeds the reported Net Spread Income per Common Share of $3.92 when $5.00 dividend was paid. Furthermore $4.72 DRANSIPCS exceeds the Net Spread Income per Common Share of $4.66 and $4.33 of 2011 and 2010 respectively when $5.60 dividends were still being paid. So from a TBA Adjusted Taxable EPS perspective $1.25 is clearly sustainable.
TBA Adjusted Taxable EPS and DRANSIPCS analyses illustrate that the long term earnings potential of the company hasn't changed. Treasury rates, UST-MBS spreads, and payups are all now back to approximately what they were in 1q12 when we set the dividend to $1.25. Our BV is now back to about what it was in 1q12 too. The market giveth and \u0001the market taketh away, but our dividend should remain unchanged.
My thoughs is that will be problems in the short term, but thanks to the spread it will be better in the medium term. Since the number of fools is infinite, a dividend reduction could cause more panic selling by the grey of freightened ship. This looks like an armageddon for the REITs, jackals are eating from this, by flooding the web with bashing. But the reality should meet the market and at that point REITs should recover, at least the great majority of them.