Total economic return for nine months ending Sep 30 was $2.51, consisting of a .54 increase in BV (from 16.10 to 16.64) and dividends of 1.97.
That amounts to a 15.59% nine month return on starting book value.
Stock price has come in on a P/B basis but that's just the madness of crowds.
MAIN had slightly more economic return but most of the rest of the BDC universe was substantially lower - e.g. HTGC at 6.09%, ARCC at 8.75%, FDUS at 6.97, NMFC at 7.9%.
Comparatively TCAP has done okay this year.
Somewhere along the line economic value has to be generated by the company for an investment thesis to sustain. WMC as proxy for a bunch of macro trends is a little obscure.
which is it? are you a fan of WMC management or not?
do they have a viable business model or is it only as good as their last hedging strategy?
it seems to me that in a rising interest rate environment they have to pay taxes on their hedge gains that are not offset by qualifying losses, thus creating phantom (not economic) taxable income.
in a declining rate environment they just lose money on hedges with compressing nim and few reinvestment options.
-.02 economic value in Jul/Aug.
what is your view for their Q3 results?
I'm not talking about x dividend adjustments -
If you go to MAIN historical prices (which adjust prior actual closes for dividends) - and select, for example, Jan 4, 2010 - the adjusted closing share price is recited as $9.64, the net price after accounting for all dividends since Jan 4, 2010. (The actual closing price is given as $14.06).
If you go to MAIN historical chart, pull up a five year chart and zero in on Jan 4th, 2010, you can see that the price is depicted in the $15+ range.
Obviously the chart does not reflect the closing share price adjusted for cumulative dividends.
My point: the comparative chart doesn't work to reflect returns from dividends, only from share price movement.
how do you explain/rationlize a minus.02 economic return for WMC in Jul/Aug given your positing of a "Goldie Locks" environment?
Yahoo deleted my point.
THe comparison feature in interactive charts does not adjust for dividends, leading to a worthless comparison for shares with different dividend yields since only share price and not dividends are compared.
More useful is to utilize the historical prices feature for the comparison period desired, and compute either a simple return or an IRR. THis method accounts for both share price movement and dividends thus giving a more accurate data set.
as i am sure you are aware, Yahoo Finance allows you to chart comparison for any stock to any other over a given period of time and they use the DJI as a quick comparison.
I see it's pointless to attempt a logical discussion with you.
Well jack, a little arbitrary for you to choose Aug 8.
Using the entire data series,
WMC closed at 18.85 on 5/11/12 - adjusted for dividends that equates to 12.59 (see Yahoo historical prices).
WMC closed yesterday at 14.18.
So in the period 5/11/12 to 10/9/14 there was a gain of 1.59, or 12.6% of the adjusted price, in about 2years and 5 months.
That, of course, is not 10% per year.
To my original point - it is not a 20% yield, either.
From the WMC annual report for 2013:
Index 05/09/12 06/30/12 09/30/12 12/31/12 03/31/13 06/30/13 09/30/13 12/31/13
Western Asset Mortgage Capital Corp. . 100.00 97.45 117.28 110.31 129.67 106.75 103.13 95.98
S&P 500 . . . . . . . . . . . . . . . . . . . . . . . . 100.00 100.92 107.33 106.92 118.26 121.70 128.09 141.55
Russell 2000 . . . . . . . . . . . . . . . . . . . . . 100.00 101.49 106.82 108.80 122.28 126.05 138.92 151.04
SNL Finance REIT . . . . . . . . . . . . . . . . 100.00 104.28 113.02 106.04 125.19 103.48 101.74 102.42
A hundred bucks invested in the IPO was worth 95.98 at year end 2013 with all dividends reinvested.
Lot's of ways to invest and trade - short term isn't my thing.
The shares have been consolidating for a bit, but earnings, dividends and book value continue to increase. Rather than a negative the tepid share price performance could be construed as an opportunity to accumulate. I'd rather buy at 30 than 35.
I think MAIN is a long term winner so I don't really care what its share price does as much as how the fundamental operating performance is going, as over the long term that will correlate with share price.
Six months - somewhat arbitrary and short term.
Over three years or five years MAIN blasts the DOW. Since 1/1/11 it's 68% v. 40%.
Differentials in return are almost meaningless for short time frames and incredibly important over longer periods.
Absolutely correct - many trading opportunities.
I'm not good at that and prefer to focus on durable investable theses but there are many ways to succeed.
In case you missed it, here's a snippet from the 12/17/13 press release:
The stock portion of the dividend is being paid by the Company in order for the Company to reduce its undistributed taxable income from 2013 and satisfy the REIT distribution requirements. Such incremental undistributed taxable income primarily pertains to net gains realized on certain hedging transactions and the inability to offset such gains for federal income tax purposes with net capital losses realized on the sale of mortgage-backed securities. The Company has chosen to pay a portion of the dividend in stock in order to maintain the earnings power of its portfolio while fulfilling the REIT requirements.
No, I don't know anything about reits, just post here for relaxation.
The point that seems to escape you is that WMC reports taxable earning well in excess of its economic value creation, partially because it cannot deduct from taxable income losses on its hedge accounting.
Any fool would know it has to distribute taxable income, only fools would generate economically fictitious such income, so as to obligate it to distributions it cannot afford.
I guess you were projecting.
how about WMC's dividend yield since its IPO bears no resemblance to the creation of economic value, meaning that distributions are from capital regardless of what GAAP says?
WMC's inability to deduct hedge losses due to the absence of gains resulting in taxable "income" that needs to be distributed is something to eschew.
I'm really not missing many points.
First of all, the Aug 31 book value was for the first two months of the quarter, not for one month.
Secondly, the book value calculation inculcates all economic activities - interest earned, trading gains or losses, hedging adjustments, unrealized and realized gains on portfolio positions, and all other results due to active or inactive management.
After all of that the company lost value for the two month period.
That it determined to pay an increased dividend was due to the unpleasant fact that in spite of the absence of economic value creation the company likely had taxable income which it is obligated to distribute - the worst of all worlds - namely tax obligations incurred (passed through to shareholders) in the absence of economic value creation.
Your characterization of my perspective - "one unstable figure of merit" - isn't really appropriate. The key metric for these companies is total economic return, which consists of change in book value plus or minus dividends paid. I looked at two "unstable figures of merit" - bv and dividend, but since there was not dividend total economic return for the two month period was - .02.
Everyone is welcome to their own investment perspective, but losing economic value but paying a dividend because of taxable income derived, presumably, from the inability to deduct hedge losses doesn't strike me as a reasonable business model.
I am awful at and not interested in trading bonds. What makes a business out of a mReit is the ability to manage the portfolio to smooth balance sheet impacts of bond valuations, absorb the costs thereof, and then have something left over to distribute to shareholders, conditions not extant here.
I guess you missed the part where the dividend wasn't based in economic value created.
If there had been a .70 dividend, AFTER WHICH book value declined .02, then it would have been clueless fretting.
If WMC is merely an MBS surrogate it would be simpler to trade the bonds.
But thanks for your respectful comments.
- Whatever their "earnings" were - in the current quarter the economic reality depicted by their press release is that their book value was down .02 before dividend. To me that means that they lost .02 of economic value so far this quarter - meaning they dissipated value rather than created it. That doesn't provide an economic underpinning for the payment of a dividend, except for the fictional arbitrage of taxable "earnings" obliged to be distributed while Rome burns, er book value declines. It's not a logical business model.