Some of the points that resonated with me were:
1. Emphasis on maintaining the current dividend
2. Drop in BV because of mark-to-market represents an investing opportunity
3. Environment looks very favorable for the foreseeable future Fed tightening won't take place until 2012 and when it does it will be gradual and a continued steep yield curve.
4. Additional offerings that are above BV to take advantage of opportunities
5. Significant hedging thus reducing risk going forward.
6. Significant liquidity
7. Lower expense ratio
8. By buying forward they take advantage of negative financing
9. Stability-management is working to make this a stable company with a long term future of dividend payments
Conclusions: For income investors, this will be a good company to own. For those looking for price appreciation, there are probably better places to put your money.
Again, these are some of the main points that resonated with me. How about you?
I have been in and out of the stock. Just came in. First, they have been issuing new stock and the "golden" return from revaluing assets has never occurred. Why?
Second, tell me when the low is going to be. If you bought at the mid point of the price range you barely made money from tying you money up.
Third, management gets great stock options and major holders buy at a discount when they issue stock.
As I said, little guy gets screwed until they stop issuing stock.
I have been a long term buyer who has sold before they issue more shares. I bought in today, but consider, tie your money up to get a dividend, they issue stock, the price goes down greater than the dividend. What is a concern is they have been issuing stock at below
what the book value would be without the dilution. Also large buyers are getting the stock at significant (5%) discount. The small guy gets burned. I now have to watch this closely to sell before the dividend and "traditional" issuance of more stock. That is the only way I have made money on CYS. Target is 14, but with their dilution we are years away. Waiting for them to announce no more stock issuance which works only for Management and market makers.
Looking at a 1 year chart, the price has been between $12.50 and $14.00. If you would have bought 1 year ago you would have collected $4.15 in dividends. If you are not making money, you are doing something wrong.
Reference #4. Seems to me that if new shares are sold above Book Value, then there is no dilution; it's the opposite. Even better if mark to market is held to maturity and face value is attained. Do I have this right?
A few of the folks calling in were new guys and were getting educated. I would recommend that people read and reread this CC to get a proper idea on the business. I thought it was very well done.
A couple of interesting things I heard were Grants comfort with extending the leverage. Although he said he wont. His voice tone and the way he spoke basically said that "we are doing things right, we will make money for everyone, why do we need to bring on more risk"
Also a question was asked on the #1 thing that the company does not want to see. The answer was drastic rises in rates in a short time (1year). The response was telling because to me it sounded as if they could handle moderate rises without it being a major issue. How many other companies are prepared for a rise in rates?
Agreed, but the key to long-term, sustainable dividends will be a continued steep yield curve. IMO, that's the real risk.
I'll take the 60 cent dividends, but I think that's a very high water mark.
I don't have a problem with their results, although hedging costs were higher than I expected. The decline in book value at y/e was in the face of a moderate bond market sell-off. In a fund levered like 8-to-1 I actually expected book to drop further.
Personally, I wish they would reduce the dividend to something sustainable over the long run (say, $1.50, which would be a 12% ROE on the current book).
Managements that pay a dividend they know for a fact that they cannot sustain, to me, are promotional, which I really don't like. Obviously I understand that the high dividend yield attracts retail investors and helps to sustain the premium to book, which allows for accretive offerings.
I own some at $12.50 but will not add above $12 or the next offering-related sell off, whichever comes first.
Unfortunately, I am not an expert but as I understood what was being said was that
if they buy forward they buy at a discount. The reason for the discount is that interest rates rising has caused the value of fixed yield assets to fall. However, if they hold the asset to maturity, which they plan to do, they receive full face value for it. However, because of Mark-to-Market the same rising interest rates that allow assets to be bought at a discount results in a "book loss" to the portfolio which reduces BV. This was the primary causes of BV decreasing during the quarter and why they said that a decreasing BV due to Mark-to-market represents a buying opportunity in the market.
I would also like to be educated on this if anyone understands it better.
In any event, management felt that buying forward, while affecting current earnings, would result in future earnings that are greater than the missed opportunity for current earnings. This is apparently not always the case but there was an opportunity that manage saw and took; much like the opportunity to hedge at unusually a low cost.
I think on expense ratio they said goal is under 2%. Interesting they emphasised producing stable value; but they also expect to maintain the div at .60. The reps asking the questions seemed to accept this as a good report. Either it was, and things are better than most of us understand, or they were just being polite.