American Capital Agency Corp. (AGNC): Are This REITs Dividends In Danger?

Climbing Mortgage Rates

Prepayments accelerate during the times when mortgage rates are decreasing. However, the following charts suggest the rates have been on the rise since the beginning of the year.

Despite Fed’s best efforts to keep the rates at their lowest, mortgage rates have continued their upwards journey due to the lack of cooperation by some of the largest US mortgage lenders causing a lender shortage. Rising mortgage rates discourage borrowers to refinance, resulting in less prepayment. This means American Capital Agency’s CPR is likely to remain stable.

Strong Financials

American Capital Agency Corp. (NASDAQ:AGNC) reported a 21 bps expansion in its fourth quarter net interest rate spread, while its peers Annaly Capital Management, Two Harbors and Armour Residential (NYSE:ARR) reported declines of 7 bps, 20 bps and 27 bps, respectively.

American Capital Agency reported a 9.6% sequential growth in its fourth quarter top line (interest income) of $570 million. Also, the bottom line of $810 million climbed up from the previous quarter’s $89 million. During the full year 2012, the company earned $6.78 per common share in taxable income, while it distributed $5 per common shares in dividends. Since the income is already exceeding the dividend distribution, investors can expect at least the current dividend rate to continue.

Conclusion

I believe you can expect American Capital Agency Corp. (NASDAQ:AGNC) to deliver a dividend hike after it announces the results for the first quarter of the current year. It strong financials, the rising mortgage rates and the highly prepayment protected asset mix leads me to recommend American Capital Agency to investors who are looking to enhance their regular income.

The article Are This REITs Dividends In Danger? originally appeared on Fool.com and is written by Adnan Khan.

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