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CYS Investments, Inc. Message Board

  • oldschoolbuilder oldschoolbuilder Dec 27, 2012 10:08 PM Flag

    Great Buy Here

    CYS looks pretty darn good to me here at 85% of year end BV and a 13.5% dividend yield that seems pretty sustainable.

    The MBS book is mostly newly minted current coupons that the company custom selects so that it pays a generic price for essentially a specified pool portfolio with lower CPRs. Emphasis on 15 yr product (50% of the portfolio as of 3Q) lowers the prepay risk somewhat if rates drop further. Hedge ratio is 50% of repo plus caps equal to another 25%--thus decent BV protection against higher interest rates.

    The expense ratio is now really low given the size of the book plus an internal management structure. Incentives are thus very much alligned to produce solid risk adjusted returns and the lower costs are passed on to shareholders via higher dividends.

    Management was buying the stock aggressively in the high $12s and low $13s (pre $0.92 dividend payment last week).

    Nice opportunity to pick the stock up here I think. 13.5% dividend yield provides decent downside protection plus there is likely at least 10-15% of capital appreciation potential to around 1.0X BV. Over a 2 year period that's 30-40+% total return potential with little downside risk (when the dividend is considered).

    Sentiment: Strong Buy

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