Two Harbors (TWO) Cuts Dividend by 25% to Preserve Capital
Two Harbors Investment Corp. TWO has announced a reduction in its quarterly dividend payments. Its board of directors declared a quarterly cash dividend of 45 cents per share for second-quarter 2023.
The dividend will be paid out on Jul 28, 2023, to stockholders of record as of the close of business on Jul 5, 2023. The second-quarter dividend indicates a decline of 25% from the previously announced amount of 60 cents.
TWO’s strategy of capital preservation seems prudent amid decelerating macroeconomic fundamentals.
Bill Greenberg, Two Harbors’ president and chief executive officer, remarked, “The decision to reduce the dividend this quarter was not a function of downward pressure on earnings, but rather a strategic focus on enhancing book value and further investing capital into a positive Agency MSR and MBS environment”. He continued “We believe that at this level the dividend will be sustainable and competitive, while allowing us to invest additional capital at very attractive spreads and grow our MSR business.”
Markedly, the company expects wide residential mortgage-backed securities (RMBS) spreads and slow mortgage servicing rights (MSR) prepayment speeds amid the high interest-rate environment. Hence, focusing on expanding the portfolio seems opportunistic.
In fact, on Mar 31, 2023, the company had a $15.8 billion investment portfolio. During the first quarter, TWO increased its Agency and MSR investments to $8.7 billion from $7.7 billion and $3.1 billion from $3 billion, respectively, as of 2022 end.
In the past six months, shares of TWO have plunged 16.4% compared with a 7.5% decline in the industry.
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TWO currently carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
While solid dividend payouts remain the biggest attraction for income investors, numerous other companies have revised their dividend policy to navigate the ongoing turmoil in the financial markets.
Earlier this month, New York Mortgage Trust, Inc. NYMT slashed its quarterly dividend by 25% to 30 cents for second-quarter 2023.
In first-quarter 2023, management indicated keeping dry powder for investment opportunities in the ABS/MBS markets amid a weak macro backdrop. Given the economic recession risk, NYMT reduced its pipeline and anticipated to continue allowing the short-duration BPL bridge position to runoff and help generate liquidity.
In March, Annaly Capital Management, Inc.’s NLY board of directors declared its first-quarter 2023 common stock cash dividend of 65 cents per share. The announced dividend indicates a 26% decline from the prior figure of 88 cents.
On its fourth-quarter 2022 earnings call, NLY’s management indicated its intention to reduce quarterly dividends in first-quarter 2023 to a level closer to the company’s historical yield on book value of 11-12% compared with its previous 16% yield on book value. Management believes that this dividend level is sustainable and aligns with the current return potential of NLY’s portfolio.
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