Not sure whether the dividend will be announced tonight. Could be any day this week, looking at the history.
I'm expecting a dividend about the same as last quarter -- around $1.50 per share. I don't pretend to have a crystal ball, but here's my reasoning --
1. Q2 dividend was $1.50 and Q2 earnings were $2.02 per share
2. AGNC increased shares outstanding by 25% in mid-August (from 15 million to 18.75 million), thus diluting Q3 EPS. They probably put the new capital to work quickly so the hit to EPS is probably on the order of 15%.
3. Fundamental business conditions for AGNC have been about as good in Q3 as in Q2, maybe even a little better, as follows --
a. Mortgage rates are about the same, short term rates such as 1-month have been still VERY low, so spreads should be about as good as in Q2
b. Prepayments will not be much changed because average mortgage rates over the quarter have not declined much, if any
c. Management had been increasing leverage over the course of Q2, to 7.7x by June 30 (see Q2 earnings presentation) from 7.0 at the end of Q1 (I'm going from memory here, I might mis-remember). With such stellar spreads and low short term rates, I'm thinking they may well have continued to increase leverage to 8.0 in Q3 (it was over 8.0 at one point last year before the financial crisis). More leverage means more profit.
d. AGNC had accumulated $.79 undistributed earnings per share at the end of Q2. This is about $.64 per diluted share after the mid-August share offer. This is money they could use to buffer the impact on the dividend from the share offer, if management chooses.
4. So it is reasonable to think that earnings remained at the same or higher level for Q3 as for Q2. If earnings just remain the same as in Q2, Q3 EPS should be about $1.60 (down from $2.02) due to the increase in shares outstanding. This alone would cover a dividend of $1.50.
5. Factor in higher leverage, and the use of the new capital from the share offering for 6 weeks, and EPS could be $1.80 or more. Finally, management has the cushion of the $.64 per share of undistributed earnings from the first 2 quarters. Together, these make me think that $1.50 is quite possible.
Comments or thoughts?
""He also serves who only stands and waits"
John Milton's quote is "And post o'er land and ocean without rest;
THEY also serve who only stand and wait."
If you're going to quote, get it right.
Because of the Secondary Offering my research indicates that AGNC should Earn around $1.15 Per share. and may also pay around $.20 cents of retained earnings for $1.35 Per Share.
Of course, this is just a guess!!
Well, it looks like we will have to wait until next week for the Dividend announcement too.
Good luck to everyone,