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Invesco Mortgage Capital Inc. Message Board

  • mrmcook mrmcook Dec 8, 2011 4:39 PM Flag

    what a POS this thing should drop big tomorrow

    I'm sticking with ARR and AGNC

    safer and better run

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    • With leverage and low rates I am still wondering how AGNC continues to make their dividend.

      IVR must have eaten some nasty hedge losses..No other explanation...

      But then again, they may just be incompetent...

      • 3 Replies to orinda_fellow
      • Both. They bought their swaps hedging against rising long rates. Instead, rates went down.

      • If you go to AGNC's earnings presentation you will see that they have 0.85 in undistributed earnings to make up any dividend shortfall from declining spread. They disclosed that their spread had declined below 2% during the 3rd quarter. They also use swaptions instead of swaps to hedge part of their book, which probably keeps the markdowns lower.

      • There should be no mystery in how this dividend came about. I provided the calculation a couple of weeks ago and as late as yesterday in another thread. Here it is again:

        From their earnings report and presentation, they said they had $14.33 billion in assets, earning an average spread of 2.39%. They had $8mm of expenses last quarter and with the increase in assets due to the offering, that number will go up some, so use $9mm. They had 115,387,548 shares outstanding. $14.33b x .0239/4 = $85,621,750 - 9,000,000 = 76,621,750/115,387,548 = 66 cents.

        As for AGNC, because they are an agency mREIT, they are able to partly offset the decline in spread by small increases in their leverage, which I think has grown from the low 7's to the high 7's. AGNC is also very good at moving from fixed to floating product during the different cycles, selling appreciated securities and booking gains that they can use to keep the dividend at the same rate. I suspect that their dividend will decline slightly unless they can continue to increase leverage to compensate for lower spread, but they also have the advantage of doing secondary offerings at greater than book value.

    • To maintain the approx 19% to 20% the price of IVR would have to drop to the high $12 range. This is ugly. I was thinking of adding to my mreits, but is this a sign of things to come?

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