American Capital Agency Maintains Its Dividend in 2Q15
American Capital Agency and Other Mortgage REITs Have Rough 2Q15
Highlights of the income statement
American Capital Agency’s (AGNC) average asset yield in 2Q15 was 2.95%, an increase from 2.57% in the first quarter. The company’s average cost of funds derived from repurchase agreements, swaps, and other borrowings increased from 1.28% to 1.43%. The net interest spread rose from 1.53% to 1.74%, primarily as a result of the company reducing its dollar roll exposure and increasing its repo funded assets. Interest rates generally rose during the quarter. Investors interested in making directional bets on interest rates should look at the iShares 20+ Year Treasury Bond ETF (TLT).
During the second quarter, AGNC earned $0.60 per share of net spread and dollar roll income, excluding “catch up” premium amortization cost, which is a function of changing prepayment assumptions.
Over the quarter, AGNC earned $333 million in net interest income, which was offset by a $872 million loss in other income, primarily due to unrealized losses on derivative instruments.
Quarterly dividend
American Capital Agency ended up declaring a dividend of $0.60 per share for the second quarter. This is a decrease from $0.62 per share declared during the first quarter. During the third quarter, the company moved to a monthly dividend payout.
In 2Q13, the company paid $0.80 per share. This volatility shows one of the biggest mistakes you can make when you look at a mortgage REIT—annualizing the current dividend and assuming that dividend yield will stay intact over time. Almost by definition, it won’t. That said, current yields do provide a useful comparison of REITs.
If we look at the big agency REITs, American Capital Agency pays a current yield of 12.4%, Annaly Capital (NLY) pays 11.9%, MFA Financial pays 10.7%, Redwood Trust pays 7.2%, and Hatteras Financial (HTS) pays 12.3%. Investors interested in trading in the mortgage REIT sector as a whole should look at the iShares Mortgage Real Estate Capped ETF (REM).
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