Annaly Answers Analyst

The Merrill analyst that published a $15.75 price target on NLY earlier this week may have an even worse day tomorrow after the market reacts to the fourth quarter dividend ($0.75) announced tonight.  That’s up from the $0.69 they declared in September and paid in October.

In after hours trading the stock went as high as $19.05 per share.

If it manages to trade to the 15% yield level on that dividend, there is room to run up to $20 per share.

The issue, of course, is what may have happened to the portfolio, the hedges, and the financing over the course of the quarter.  For those answers, we’ll probably have to wait until February. since full-year results will require completion of the annual audit.

For at least one of the group, AGNC, this uncertainty is significant.  Not only are they a relatively new company, but they had a complete change of senior management just a year into their young history.  So far this year it looks like they are maximizing current income through higher leverage and active trading.  For me, that means whatever they had in their last quarter’s portfolio is not very predictive for this quarter.

Until I have a feeling for how the new team operates in several market environments, I’ll reserve judgment.  I worked several years with the traders who first ran AGNC, so I knew pretty well how they operated when the company first launched, but I can’t claim the same kind of familiarity today.

There was a very respectful request in the comments this evening that I rank the various amREITs according to their exposure to price volatility (effective duration).

Since I don’t model each company and follow them in that kind of detail, I’m going to stick to a vague order based on my impression of the management teams and their past investment choices.  Hopefully, that will help investors know the questions that they can ask in conference calls or look for in analyst reports.

Since NLY was one of three mREITs that declared dividends today, it’s probably worth going over the entire field again.  The others were ANH and the new entrant Invesco (symbol IVR), a non-Agency mortgage REIT that has vulture investor Wilbur Ross as part of its team.  IVR declared its first full quarter dividend today, and it amounted to $1.05 per share, up from last quarter’s $0.61.  That’s an indicated yield at today’s closing price of 18.50%.

This is the time of year that mREIT investors could learn to love, because of the tax law.

Unlike ordinary dividends, REIT dividends are counted as having been paid in the prior year even if they are paid in January, as long as they were announced before December 31, and record date is also in December.

Since using the money as long as possible makes economic sense, especially with leverage, many mortgage REITs do not distribute their dividends on a strict quarterly basis.  Some stretch it to the last minute, and pay in May, August, November and January.  ANH is one of those, so enjoy the rapid-fire feeling you get from two dividends just two months apart, because it will feel like forever by the time they declare their first quarter dividend next year in Mid-April (assuming history is a guide).

I’ll just wrap this post up for now, and delve deeper into the group and how I look at them tomorrow.

For those who haven’t already looked at them, a couple of earlier posts and follow-up comments might be enlightening:

Buying MBS at a Discount

amREIT Examples



Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: