You are probably right about the movement of oil prices. However, the value of oil company stocks and the price of oil will not bottom at the same time.
ARR has lagged most MREITS during 2014, 2013 and 2012. Management at this company is not very good. You would be smart to keep your money in your pocket.
I sold and took the loss. After dividends I lost about 20% on ARR, but going forward the risk to the share price is too big to stick around. ARR could drop another dollar in a couple months if interest rates even flinch, worse yet it could continue to fall until lights out. Sometimes you have to know when you are beat. ARR in a bad investment.
The share price has fallen $2.73 during the last year and they have paid out $1.37. That is a loss of $1.36. They will not call the shares back unless they go over $25 and that is about $7.50 higher than it is now. By the time 2044 comes around this company will have been long gone, and all you money as well. Please look for a better investment, the deck is stacked against you on this one.
I would chose almost anything else. The 4.5 cent dividend is insufficient for a stock with this much risk. The share price could fall 30% or more during the course of a month or two if interest rates start to twitch. It can happen so fast you will wonder what happened.
Many of the shares held by Vanguard, Black Rock, etc are held in index funds. Small cap index, REIT index, Financial Services Index.........Make no mistake, ARR is a very risky stock. During the last two years the dividend has not covered the fall in the share price and the dividend is too small to compensate for the risk going forward.
For the risk of owning ARR, the return is insufficient. The share price will crater when interest rates move and a 4 or 5 cent monthly dividend will make very little difference in the total return.
If the share price stays flat it is a 13% return. If the share price falls then that reduction is share price impacts the total return. For example, during 2014, the share price fell from $4 to $3.70 or .30. If that happens during 2015 the the effective return would be the 12 mos. x .04= .48 minus .30 = .18 or about 4.9%. This is a risky investment for that small of a return.
The calculation of total return has to account for the decline in the share price, from $4.00 to $3.70. If the shares were originally purchased for $3.70, then the 14.56% would be correct.
Your assessment of earnings, dividends and share price are accurate. But the performance of ARR lags comparable MREITS. Compare ARR share price, earnings, book value and dividends to two other agency REITS: NLY and AGNC. ARR's performance lags during every time period. There is nothing unique about the MREITS, they all do the same thing. Some guys are better at it, and these guys are just not as smart as some of the other players.
The mortgages currently held by MREITS are already marked to market and consequently some of the forward interest rate risk is already in the book value of these share. In other words, when mortgage rates eventually do rise, the book value of these shares may not fall as much as some are anticipating. The underlying bonds are already priced for market risk, the discount to MREIT book value is redundant to some extent.
The free cash may be different from the net income for a particular accounting period, as the free cash flow takes into account the consumption of capital goods and the increases required in working capital.
I am not an accountant but will try to help. Free cash flow from operations appears to be over 9 billion. You used 3.2 billion which looks more like it might be a net profit number. Net profit wouldn't be used in a FCF formula. I think the net profit is equal to free cash less capex, depreciation and possibly a couple other items as well.
The blood in the streets this time might be EXXI. They are heavily in debt and probably will continue to cut CAPEX which would result in falling production and revenues. Oil hedges that are currently in place will run out over the next few quarters. There is no market for salable assets and no other way to raise money. Know what you are buying. If oil prices stay low over the next few quarters, EXXI is one of the companies that end up in big trouble.
So this stock is selling off even though everyone knows that they are on target to hit mid guidance....................................hmmmm
Seems like we have heard you say that many times. Is this time different than all the previous times?
How do you know that, "all the shorts in the bond market started selling. They gave it up."
Did they call you up and tell you? :)
Sorry that is not true. If you put $1,000 dollars into a stock then you put $1,000 to work. That money cannot work anywhere else. If your investment falls to $500, you still have $1,000 of your money working in the fallen stock. If you decide to put your money to work somewhere else instead, you will retrieve only $500 to put to work instead of the $1,000 that you initially had. If you need to sell the shares to pay the mortgage you will also have $500, not $1,000. If nothing changes, you only have $500. You are betting that the stock will recover. If the shares go down, you will have even less money. If you leave the shares in your account for ten years and the stock stays flat, then you would have lost about $628 if it had been invested in a 5% yielding bond. After 10 years you would have lost $344 in purchasing power at 3% annual inflation. The stock is worth what someone will pay for it, the rest of the money is gone.