5.40x leverage X net interest margin of 1.96 = 10.584
Add back the yield on investment portfolio of 3.8% = 14.384
Take managment fees of 1.56 out and take out operating expenses of 1.49...
14.384-1.56-1.49 = 11.334% yield @ NAV
So to get the dividend run rate with end of June numbers you have to do 0.11334 x 19.77 / 4. That gives you the quarterly core run rate. So that's 0.56c a share of core earnings. They obviously are not distributing the undistributed earnings.. Not really anyways. They plan on keeping the capital and paying excise tax on it then investing it in whole loans. "We see it as a cheap source of capital" (quote of the q2 CC)
Look.. it's not complicated.
WMC buys only the longest duration paper.. 30 and 20 yr paper. It tries to hedge that paper with longer duration hedges... Problem is 30 yr and 20 yr paper get #$%$ when rates go up.. duration keeps going up.. duration gap keeps going up... It's a problem.. You can try to short TBA's to help with that as short TBA's naturally extend on the yield curve but they still doesn't work 100%. If you are long WMC - then you believe that interest rates are going to stay very low. If you are long WMC and interest rates take flight - you will get face melted. And this game is over anyways at some point.. because you can't support the dividend when fed funds rate gets to 4% and the mortgage rate sits around 6.5%. The NAV will go down the toliet unless you hedge up or move away from agencies during the other side of the credit cycle. This ultra low rate policy and fed buying program caused completely unnaturally low levels of interest rates. It's a no brainer that if rates continue to normalize over the next few years... you will likely get paid back less in dividends than the NAV drop. You can't "HEDGE" out the risk and expect to get paid BIG DIVIDENDS. You can avoid rate risk and go credit risk.. but again YOU ARE TAKING A DIFFERENT RISK. So you gotta decide.. do you want to get hit by the big train of higher rates or do you want to go credit side and run that until rates normalize than add back agencies because they do well to hedge the credit side when/if the economy slows. If you want to be smart and go whole loans for 9-13% yields @ NAV and avoid the train of higher rates than you invest in MITT. The NAV will likely improve too as credit gets better in the USA. TWO is a great example of a mortgage reit worth investing in. That is another good one. MITT, TWO, MTGE, EFC. Those are the best reits to be involved with. I am only invested with MITT now @ 16.915 (although i have plenty of cash that sits uninvested for a rainy day).
yeah it really is lol. i will keep that preferred in mind in the future though.. its just not enough return.. i like my total economic returns to be north 15 percent.
funny guy... steve quit because has asked to by the board in response to NAV writedowns. other reits got it right and hedged up at june 30. also the economic returns of mtge during the wmc ipo to now have been much better. wmc is a dog and yes i will go short it soon... ps: you guys are all gullible as #$%$. i guess you would have to be in order to own wmc. but dont worry 20 percent dividends are normal and risk free lol....
Nick, I will take the other side of that trade. I will go short WMC next week as i think the price will drop significantly.
The buybacks don't work that way. They buy back stock and sell assets at NAV. All that changes is a slight boost to NAV and earnings. Basically.. they buy back what they just sold at a discount.
BUY MITT, SELL WMC. Pairs trade. I didn't put this one on.. but gawd it looks good.
alkkov, i was the one who dropped the price at 11:12am. I sold the entire lot all the way down to $16.80. I am very bearish on MITT right now in the short term. I think home price data will tank mbs tomorrow and all mreits will get #$%$. yes i sold at a 2k loss. But it's better than losing a lot more after realizing my mistake.
plus look at the price now.. i got them trading it lower already... It will go down to $16.50 this week.
Alkkov, i really like the $22.50 AGNC puts for this week. I may go ahead and sell them later if AGNC can drop back some. Would like 0.30c/share.
bought to cover the agnc and then fixed it up some.. so i am short 84k WMC, and long 84k MTGE. ($ figure not shares)
21.04 - 17.38 = $3.66. Price of MTGE - price of WMC at time of short. it was an equal share # trade. 2k on each side.. but i changed it. I covered the AGNC @ 0.01 profit and made it a $84k MTGE vs $84k short WMC trade. A true pair now instead of a trading spread play. So I am looking MTGE to continue to outperform WMC going forward. WMC is over book while MTGE is not. So should be able to pick up 10% at some point. I left room for myself to add.
The dividends are already priced into both securities. They will drop by the dividend amount on ex date. If i use a short put than i can be put the stock and most likely would be put the stock of WMC. In order for the trade to work as intended, i can't sell any options against either security. MTGE and WMC go ex on the same day. If i felt i was that necessary to avoid collecting and paying dividend interest for both companies i could simply close out the position before then and set it back up on ex-day... but i feel the dividend is definitely priced in that this point.