American Capital Agency Corp.
) announced the slashing of its dividend rate by nearly 24%. The
company will now pay a third-quarter dividend of 80 cents per
share instead of the prior dividend rate of $1.05.
The revised dividend will be paid on Oct 28 to shareholders of
record as of Sep 30. Investors reacted negatively to this news,
as the stock lost 2.7% during yesterday's regular trading
However, just a day before, following the 'no-taper' announcement
from the Fed, real estate investment trusts (REITs) have rallied
the most. After the Fed's announcement, Mortgage REITs (commonly
referred to as mREITs) like American Capital Agency jumped 5.3%
during the regular session on the Nasdaq. These mREITs are
expected to recover their ground with tapering being held back
until the Fed's forthcoming meeting between Oct 29 and Oct 30.
As a matter of fact, mREITs invest in mortgage backed securities
and use short-term debt for financing their purchases to gain
from the spread. In the past couple of years, with low short-term
rates and quantitative easing policies (QE), mREITs have
benefited from lower borrowing costs, leading to higher yields.
However, increasing yields on the U.S. Treasury 10-year note have
reversed the situation.
Amid volatility in both interest rates and mortgage spreads
environment, American Capital Agency reported disappointing
second-quarter 2013 results with its net spread income per share
of 66 cents significantly lagging the Zacks Consensus Estimate of
85 cents. The company's book value also declined considerably
during the quarter.
The increasing yields on the U.S. Treasury 10-year note continued
in July, August and mid-September. Though the recent 'no taper'
announcement brings relief for the company, we anticipate the
volatility in interest rates in most of the third quarter to
impact the company's quarterly performance and hence its dividend
Nevertheless, American Capital Agency Corp. announced that in the
third quarter, the company repurchased approximately 11.9 million
shares of its common stock, representing 3% of its outstanding
shares as of Jun 30, 2013 for $263 million. With this, around
14.8 million shares have been bought back for approximately $347
million since the beginning of the buyback program in the fourth
quarter of 2012.
American Capital Agency currently carries a Zacks Rank #3 (Hold).
A number of promising stocks that are worth a look include
Starwood Property Trust, Inc.
), which has a Zacks Rank #1 (Strong Buy) as well as
Ares Commercial Real Estate Corp.
Blackstone Mortgage Trust, Inc.
) with a Zacks Rank #2 (Buy).
ARES COMMERCIAL (ACRE): Free Stock Analysis
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STARWOOD PROPRT (STWD): Free Stock Analysis
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