Anyone knows the history how the secondary affects the DIV? How many secondary AGNC has done before? The DIV that I can see has been largely going up steadily. So if that's case, i.e. the DIV stays the same, then the price drop caused by this secondary is actually a good opportunity to buy more since the offering 1) raised the book value, and 2) gives batter return to whoever buys in now at the lower price. What's wrong with this understanding?
I see, thanks for explaining. Being able to quickly close a 10M share offering at at $2.46 (10%) premium to last reported BV is a sign of strong pricing power. And I do think this offering will sell out quickly.
I have a different way to look at it. I am guessing end of Aug BV was ~$24.14 and I hope to find out how close my guess is at JMP tomorrow. I am happy with $26 because the ~$1.90 premium to my estimated current book value that the newbies pay means the newbies essentially pay all of their own 3Q dividend, and then some. That gives management plenty of time to get the new cash working before the 4Q dividend. It also means that all the investment banks who underwrote the offering are going to be loudly trumpeting AGNC's praises so that they can sell their shares.
I am actually happier with a $26 offering than I would have been with a $27 one because it creates a better buying and trading opportunity for me. $27.04 would have represented a 12% premium to my estimated current BV, and a 12% premium to BV is what 2 of the last 3 secondaries were priced at. I am not sure that I would have bought calls today had AGNC traded at $27 upon the announcement of an offering priced at $27.
I am extremely confident that the calls that I bought today will be profitable.
Look at history of this and other stocks with high Div., like RSO or CIM, HTS...
From time to time they have to issue shares to maintain their DIV. As long as there is loose monetary policy and interest rates are this low, they issue shares to take advantage of market mismatches. When interest rates start rising, maybe in 2011, I would sell.
If you go back to all these stocks, you can see that the market goes down relatively heavy and then during the following 2 months gets back to around the same level.
With these stocks, dilution is not the concern as long as they manage to maintain their dividends, which is the essence of the whole exercise.
The immediate question now is the price os this offering.
Just some thoughts, for what it´s worth. Please do your own DD
Same Ideas are floating around at RSO, we have come back to within a dollar or so (After a $2.50 drop), when our offering happen 3 months ago. Tomorrow is ex-date at RSO so will be down a little. But ceo says trying to grow dividend, we will see it it materializes by the march quarter of next year.
It is the pit's to be riding the bronco down and hope she goes back up.
Hope you do well
Agreed. This stock didn't blink after it's last secondary of 6 million shares earlier this year. It's part of their strategy. Don't expect any pps appreciation here. When the stock shows strength, they dilute and use the proceeds to grow their assets under management. In the short term (over the next few days-weeks) the stock will drop. Over the long term, you'll still be collecting your 20% yield which will push the pps back up to these levels when they'll start the cycle over.
Just think about it, once they announce that next dividend is holding firm at $1.40/share, how can it not look even more attractive at 26.50 than it does at 28? I just feel bad for the people that opened a long position today thinking they would play the post div dip. If you were one of those people, I'd agree with the advice of down cost averaging by taking advantage of the discounted offering.
Your evidence is???? Yuor rationale is???? Simply saying "Add it up" without telling us your thought process isn't helpful for anyone. My math says that there is no good reason to believe the dividend will be reduced.
Well, not true if you look at history. On May 14 the share increased 6mil shares, and the share price dropped from around $27.50 from 5/13 to $25.50 on 5/14. However, it only took about 4 weeks, i.e. on 6/11 to be exact, for the share price to return to $27.50. And, on 6/20 they announced a DIV of $1.40, exactly the same as the previous distribution. So you see, this secondaries are really the excellent time to get in, because you can get the share at over 10% cheaper and get DIV at over 20%. You either hold the share for a month to get 10% share price appreciation or to get DIV at 20%+ for the year, both are excellent investment!