uwpltre's Blog : Are high dividend yields ever safe for investing?

Zacks likes it and 21% yield?? Looks too good to be true--I smell a rat--but OK I give up, what's the catch?! (About to plummet or slash dividend?). One chink in armor--1 decreased earnings estimate revision in past week.

Howdy, uwpltre!

let's consider AMERICAN CAPITAL AGENCY CORP (AGNC). . . . Does anyone have a good reason to stay away?

Bearing in mind I have not conducted a full-blown analysis of the American Capital Agency Corp. (AGNC) in particular, I do have one observation about the mortgage real-estate-investment-trust (REIT) industry in particular that may or may not be helpful.

As I see it, a mortgage REIT's main goal is to generate net income for distribution to its investors via the spread between the interest income on its mortgage-backed securities (MBS) on the one hand and the costs of borrowing to finance their acquisition on the other hand. In doing so, a domestic mortgage REIT might manage its credit risk by dealing only in MBS issued by an agency of the U.S. government and carrying an explicit or implicit AAA rating.



Because of its approach, this kind of mortgage REIT has at least two primary risks. One is that the U.S. government goes out of business. The other is that interest rates do not fall but rise, which acts to constrict the spread and thus cut its net interest margin. In this type of environment, I would anticipate deterioration in both the dividend yield and the share price, which has been surprisingly rapid during past interest-rate cycles.

Accordingly, anyone with a position in a mortgage REIT with massive exposure to interest-rate risk might wish to consider exiting it when either the Federal Open Market Committee (FOMC) or Mr. Market first signals the next change in monetary policy between easing and tightening.

Good luck!

MackTheKnife

This is so attractive, I expect as the price increases the yield will naturally decrease. (21% is a temporary lure)

AGNC left a nonconfirmed RSI high at the recent $29+ high and on the 1 year chart it shows that the 52 week high is also a nonconfirmed high. The windup? Like everything else, AGNC "should" rally with the coming strooooong market rebound that'll take the majer indimacies up to at least retest the 52 week highs. But! once that fun is dunn you can "expect" AGNC to make a new 52 week low and thur'll be no way to tell how low it'll go since thur's no historical price background on this POS. It's only been trading since 2008 so it "appears" that it "might have been" invented to take advantage of the trememendous money pump the insiders on Wall St were privy to since they are so directly tied to the Federal Reserve and U.S. Treasury dept. That makes AGNC even Mighty Mo dangerous. *-) After the rally has run its course (and todaze rally should be sold BTW since short term bottom isn't even in yet) every single REIT on planet errrth will be going to new 52 week lows and ALL divies will be painfully eliminated. And thaaas gonna happen during a period of falling short term intrust rates....so even Mack is gonna be confounded...again :-) 3J

I think anything with a high dividend yeild is attractive, but I would stay away from tradable reits right not. I don't neccesarily think real estate is a bad play right now, but I'm doing it through non-tradable reits, with Cole and CB Richard Ellis. AGNC does have some good numbers behind it though, fantastic price/book, great P/E and great Profit and Operating Margins. Analyst opinion is a 3, which bothers me a little, a price target of 26.61, with 9 brokers watching it. I'm not going to do it, but theres is definitely the possibility of capital appreciation to balance out that monster dividend. Right now, to take advantage of high dividends, I'm using alot of closed end funds. FHI has a 28% income dividend,a nd is trading at a discount. AOD, AGD, and GTU are also prime candidates right now with high dividend yeilds, and market values below their NAV,

Anyway, just my two cents.
-Badger

You're going to pay out the nose on taxes with any dividend stock. Politicians have been zeroing in on dividends lately as their answer for taxing the rich, etc, etc. I think it's a shame that companies are discouraged from paying out dividends and instead choose to focus on growth of market cap as the only method of rewarding investors.

If you have lost thousands which you claim then why are you even bothering with this class of stocks? There are tons of other stocks and sectors to concentrate on. The only advantage I see to your interest is one for personal educational purposes or possilby a self-serving reason to urge others to take interest in this sector or individual stock. That is my thought. Good Luck!

There are tons of other stocks and sectors to concentrate on.

Ktoyou,

What are the chances that the board of directors will get their secondary offering and adversely affect shareholder equity and the market price of common stock?