AGNC stock paying 19% dividend

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What do you guys think about AGNC stock ? It gives 19% dividend yield


AGNC American Capital Agency

Any comments on this stock ?

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According to it's profile

"It invests in agency pass-through securities and collateralized mortgage obligations for which the principal and interest payments are guaranteed by a U.S. Government agency or a U.S. Government sponsored entities. The company funds its investments primarily through short-term borrowings structured as repurchase agreements. It has elected to be taxed as a REIT under the Internal Revenue Code of 1986."

Not really sure what agency pass-through securities are, but I invest in a somewhat similar company, CIM, it invests in mortgage back securities, and I've had pretty good returns for the past couple years with it.

The general rule of thumb is that when a stock's dividend yield gets up into hat sizes, you want to avoid. I think that's a good rule to follow here.

Shares Outstanding: 52.19M
Trailing Annual Dividend Yield: $5.60 / share
Revenue (ttm): 207.15M
Net Income Avl to Common (ttm): 190.73M


Dividend pay-out = 52.19M x $5.60 = $292.264M

They pay out more than they took in. If you take a look at their balance sheet,

Total Cash (mrq): 126.61M
Total Cash Per Share (mrq): 2.43
Total Debt (mrq): 8.16B
Total Debt/Equity (mrq): 894.16
Current Ratio (mrq): 0.08


I think that they probably borrow money to pay for the dividend.

intex45 said:   According to it's profile

"It invests in agency pass-through securities and collateralized mortgage obligations for which the principal and interest payments are guaranteed by a U.S. Government agency or a U.S. Government sponsored entities. The company funds its investments primarily through short-term borrowings structured as repurchase agreements. It has elected to be taxed as a REIT under the Internal Revenue Code of 1986."

Not really sure what agency pass-through securities are, but I invest in a somewhat similar company, CIM, it invests in mortgage back securities, and I've had pretty good returns for the past couple years with it.


CIM invests in non-agency mortgage-backed securities
AGNC only invests in agency mortgage-backed securities (similar to CIM's parent company NLY)

Pretty much the only difference. One is guaranteed by gov't, one is strictly non-agency

kantscholar said:   The general rule of thumb is that when a stock's dividend yield gets up into hat sizes, you want to avoid. I think that's a good rule to follow here.

Typically, but the reason it's 19% dividend is because it's a REIT (by law, must pass 90% of income paid to shareholders). Also, their business model is made for this type of environment. Borrow at 0%. Lend at 3-4%. Profit from the 2-3% spread, leveraged by 7.9X. That's their story.

CrappyDude said:   Shares Outstanding: 52.19M
Trailing Annual Dividend Yield: $5.60 / share
Revenue (ttm): 207.15M
Net Income Avl to Common (ttm): 190.73M


Dividend pay-out = 52.19M x $5.60 = $292.264M

They pay out more than they took in. If you take a look at their balance sheet,

Total Cash (mrq): 126.61M
Total Cash Per Share (mrq): 2.43
Total Debt (mrq): 8.16B
Total Debt/Equity (mrq): 894.16
Current Ratio (mrq): 0.08


I think that they probably borrow money to pay for the dividend.


By law, as a REIT, they must pay 90% of income to shareholders. Looking at the payout ratio is meaningless for REITs, MLPs, etc. because it will always be 90% or greater.

They just raised cash; I'm sure they deployed that money to buy up more securities instead of paying a dividend...

Remember, their business model is to borrow at Fed Funds Rate (0%) and purchase agency securities (backed by Fannie, Freddie, etc. aka the government) at 3-4% and pocket the spread (less of interest rate swaps, hedges, etc.) of 2-3% (in these times) then lever the portfolio (currently around high-7X to 8X). Great cash machine, but only while rates are this low.

You should also check out NLY. It's the largest mortgage REIT in that space. AGNC is by far the best performing though. Same exact business model -- no secret sauce here.

I think it's a great short term play while rates are still ~0.25%, but be careful as the rise in interest rates will hurt the company.

If you are thinking about pulling the trigger, please keep in mind dividends are fully taxable if they are not in a tax-privileged account (401k, Roth, etc.).

Disclosure: I am overweight AGNC and NLY.

This sounds like another can't-lose situation like CN47's. Too bad All my credit is tied up in PMs right now.

DELZY ALWAYS BRINGS THE MEAT!

fuzi0n said:   kantscholar said:   The general rule of thumb is that when a stock's dividend yield gets up into hat sizes, you want to avoid. I think that's a good rule to follow here.

Typically, but the reason it's 19% dividend is because it's a REIT (by law, must pass 90% of income paid to shareholders). Also, their business model is made for this type of environment. Borrow at 0%. Lend at 3-4%. Profit from the 2-3% spread, leveraged by 7.9X. That's their story.


You forgot a few things that follow that story. Interest rates tick up. Go insolvent. Get bailed out by government. Shareholders get wiped out. Repeat.

I have ANH and CMO. Share prices are slightly higher than my cost, which means I have been earning the 14% dividends in my IRA.

http://eresearch.fidelity.com/eresearch/goto/evaluate/news/basic...


Accounting & Governance Risk Overview: American Capital Agency Corp.
BY Audit Integrity Research
— 7:18 AM ET 12/20/2010

American Capital Agency Corp. (AGNC

AGNC AMERICAN CAPITAL AGENCY CORP. 29.86
Change +0.07 (+0.23%) AS OF 4:00 PM ET 12/23/10.
Chart for AGNC Research

) is currently rated as having

Very Aggressive
Accounting & Governance Risk (AGR®), receiving an AGR score that places them in the
7th percentile
among all companies in North America
rated by Audit Integrity, indicating higher accounting and governance risk than
93% of the other companies.




also

AGNC Declares $1.40 Fourth Quarter Dividend
BY PR Newswire
— 4:01 PM ET 12/17/2010

BETHESDA, Md., Dec. 17, 2010 /PRNewswire-FirstCall/ -- American Capital Agency Corp. (AGNC


) announced today that its Board of Directors has declared a cash dividend of $1.40 per share for the fourth quarter 2010. The dividend is payable on January 27, 2011 to common shareholders of record as of December 31, 2010, with an ex-dividend date of December 29, 2010.

so you get a 19% dividend on 1/27 for a high risk purchase in the next week?

^where do you get the idea that an mREIT is high risk?

nycll said:   ^where do you get the idea that an mREIT is high risk?

actually I'm asking ??
so 19% w/o risk?

I see. The expected return is zero percent for buying the stock (or any stock) prior to a dividend, because on the ex-dividend day the share price will drop by the dividend price when all esle are being equal in terms of market environment. No free lunch here.

The ratings for this stock are all over the place.

Ford Equity Research: Strong buy
Jaywalk: Hold
TheStreet.com: Sell
Market Edge: Long
ResearchTeam: Reduce

vickh said:   nycll said:   ^where do you get the idea that an mREIT is high risk?

actually I'm asking ??
so 19% w/o risk?


No. 19% over 1 year, which is 4 quarters so less than 5% per quarter. But the stock price will reflect the dividend payment (so it will drop about 5% ex-dividend date).

The only risk you would incur buying BEFORE ex-dividend date is if you are in a non-tax advantaged account (IRA, 401k, Roth, 529, etc.) because you will be taxed on the dividend amount.

Better to purchase at the open, on ex-dividend date. It's the same thing (sans the tax)

How you think getting 19%, without risk, instantly in one day is feasible? If that were the case, every mutual fund, ETF, investment bank would be ALL over this and not have a single down year.

cheezedawg said:   The ratings for this stock are all over the place.

Ford Equity Research: Strong buy
Jaywalk: Hold
TheStreet.com: Sell
Market Edge: Long
ResearchTeam: Reduce


It's because of many factors, think about these:

- How long has Fed Funds Rate been at near 0%? It doesn't stay this low forever.
- How long left until Federal Reserve ups interest rate? Very, very important. But also very uncertain as to "when"
- Did QE2 have any effect?
- Are there any chances of QE3/4/5/etc.?
- No one knows where mortgage rates are going.
- No one knows where home prices are going.
- What if the government stops backing FNMA, FMHLC, GNMA?
- Cost of borrowing can rise dramatically.
- Companies are unwinding positions as they delever, but some companies are taking on more leverage.

A lot of uncertainty in this space. I don't blame the analysts.

jkimcpa said:   fuzi0n said:   kantscholar said:   The general rule of thumb is that when a stock's dividend yield gets up into hat sizes, you want to avoid. I think that's a good rule to follow here.

Typically, but the reason it's 19% dividend is because it's a REIT (by law, must pass 90% of income paid to shareholders). Also, their business model is made for this type of environment. Borrow at 0%. Lend at 3-4%. Profit from the 2-3% spread, leveraged by 7.9X. That's their story.


You forgot a few things that follow that story. Interest rates tick up. Go insolvent. Get bailed out by government. Shareholders get wiped out. Repeat.


Yes, that certainly can happen, but not all mREITs are created equal. Each has their own target leverage amount (5X, 8X, etc.), some have different strategies (agency MBS, non-agency MBS, fixed vs. variable, etc.), different management teams, different objectives. Some may be here in 5, 10, 20 years, some may not.

Not all mREITs are created equal. Just like investment banks: Bear Sterns, Lehman Brothers, Merrill Lynch, Morgan Stanley, Goldman Sachs. Each have different goals, strategies, leverage amounts, etc. Leverage can make you a ton of money, but could wipe you out like BSC, LEH (and I guess MER as well).

fuzi0n said:   

No. 19% over 1 year, which is 4 quarters so less than 5% per quarter. But the stock price will reflect the dividend payment (so it will drop about 5% ex-dividend date).

The only risk you would incur buying BEFORE ex-dividend date is if you are in a non-tax advantaged account (IRA, 401k, Roth, 529, etc.) because you will be taxed on the dividend amount.

Better to purchase at the open, on ex-dividend date. It's the same thing (sans the tax)

How you think getting 19%, without risk, instantly in one day is feasible? If that were the case, every mutual fund, ETF, investment bank would be ALL over this and not have a single down year.


Thanks

It was more of a rhethorical/ "too good to be true" question and to clarify how mREITs work...


I would buy these in a ira. i still don't understand when to buy or why would it would Better to purchase at the open, on ex-dividend date there?

my assumption/risk is interest rates will be artificially low for the short term, but will be higher long term

thanks OP, i like to dabble in high dividend payers (FTR, UVE, etc), looked over the analyst ratings and specs on this one and seems interesting to me, in for 250 @ 29.56 (prior to ex-dividend). We'll see how it turns out

was today the deadline?? too late to buy today

will track it to see how it goes regardless... My other high dividend stock PFE has been horrible over the last few years

it was too late for the dividend on 12/29 but i'm sure there will be another chance to get in at a favorable price...the stock opened at around 28.48 on 12/29 which was approx $1.09 lower than previous close. In theory it should have been lower since the dividend was $1.40/shr. So assuming you wanted to get the same value without the dividend as someone who had bought on 12/28 with dividend, then you'd have to buy at around 28.17 or lower. As of right now, its trading at 28.78.

I suppose that answers the question above about which day was best to buy on...prior to ex-dividend appears to have been best in this case.

First quarter 2011 Dividend : $1.40

apande said:   First quarter 2011 Dividend : $1.40

what's the ex date this time?

Ex-div on Monday the 21st. Earliest it has been in a long time.
Buy it yesterday if you want the 1Q dividend.

Interesting write-up here:
http://seekingalpha.com/article/258967-american-capital-agency-g...

Dangit I missed the dividend. Would be a great short term purchase for the roth.

do you guys feel like they're using us shareholders as a cash machine? Every time i turn around they're diluting us more with new share issuance. I know that if they use this cash wisely to increase the size of their portfolio we could benefit, but i still always feel slightly cheated when they dilute our 'ownership' without us having any say/vote in it. If their operating model is to keep using shareholders as cash machine, i think i'm going to bail out soon. What do you guys think about it?

So, what's wrong with buying it, getting the dividend, shorting on the ex dividend date, and then bailing out of the whole damn thing when interest rates go up?

valueinvestor said:   So, what's wrong with buying it, getting the dividend, shorting on the ex dividend date, and then bailing out of the whole damn thing when interest rates go up?http://answers.google.com/answers/threadview/id/595623.html

Enyin2 said:   Every time i turn around they're diluting us more with new share issuance. I know that if they use this cash wisely to increase the size of their portfolio we could benefit, but i still always feel slightly cheated when they dilute our 'ownership' without us having any say/vote in it.
Share issuance by a REIT that is trading above book value is accretive, not dilutive, provided as you say they use it for portfolio growth (which AGNC has historically done). It's counter-intuitive, but that's how it works out

Disclosure: Short Apr 29 puts.

NoBoB said:   Share issuance by a REIT that is trading above book value is accretive, not dilutive, provided as you say they use it for portfolio growth (which AGNC has historically done). It's counter-intuitive, but that's how it works out


That's very interesting, thanks for the info. After reading your comment i was looking around and see that others agree with you and that we should expect this. I'll have to keep watching it closely to see if it works out in practice. One article on Motley Fool wrote:

Shareholders quickly focus on the fact that their shares are now a smaller chunk of the company. However, the new cash rolling in adds to the company value. The shares are now a smaller slice of a bigger pie, but we don't know whether each slice has more or less pie. Keep in mind that real estate investment trusts, or REITs, must distribute most of their cash flows, so issuing shares is about the only option for raising new capital.

valueinvestor said:   So, what's wrong with buying it, getting the dividend, shorting on the ex dividend date, and then bailing out of the whole damn thing when interest rates go up?

When you own a stock, you receive dividends. When you short a stock, you pay dividends.

Would it be wise to short say AGNC maybe three or four days before the date declared that you must be holding the stock to get the dividends and then turn around and buy it back a couple of days or so after the dividend date at the cheaper price. For example. June 10th is declared the date to be holding for dividends. I sell at $31 on June 6th. AGNC peaks at $31.3 and then nose dives to $29 on June 10th. Then anywhere after June 10th I can 'buy' the short and pocket the $2?
I realize short term capital gains would eat up a lot of the profit but I have a lot of loss carry overs from last year to offset that.

Does my plan work the way I want it to?

qxxx said:   Would it be wise to short say AGNC maybe three or four days before the date declared that you must be holding the stock to get the dividends and then turn around and buy it back a couple of days or so after the dividend date at the cheaper price. For example. June 10th is declared the date to be holding for dividends. I sell at $31 on June 6th. AGNC peaks at $31.3 and then nose dives to $29 on June 10th. Then anywhere after June 10th I can 'buy' the short and pocket the $2?
I realize short term capital gains would eat up a lot of the profit but I have a lot of loss carry overs from last year to offset that.

Does my plan work the way I want it to?


Short answer: no.
Long answer: lol no.

no. the answer is right above your post.

hey, today's date doesn't matter...this was stated as an example (pretend the year is 2012). The underlying question for me was does the structure of the short and long trades work? Or are there requirements on holding before trading again that might interfere, etc.?

qxxx said:   I sell at $31 on June 6th. AGNC peaks at $31.3 and then nose dives to $29 on June 10th. Then anywhere after June 10th I can 'buy' the short and pocket the $2?Barring other unforeseeable news during those few days, there is no profit to "pocket" since you have to pay out the Dividend. The structure of your trades leads to no profit.

Skipping 8 Messages...
So... Given the FED announcement yesterday about no rate increases until 2013 AGNC will make plenty of money for the next 2 years. So a 20% yield per year over the next 2 years is pretty much guaranteed, right?



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