Dividends
Annaly reported a $0.40 dividend per share for the quarter, a 2.25% sequential drop. The dividend is also considerably lower than 2012’s second-quarter dividend of $0.55. Although Annaly’s dividend for the quarter was quite low, it was well within the firm’s estimated taxable income per share of $0.47. This means the firm had sufficient cash to pay out the dividend. At a share price of $11.50, the dividend is equivalent to an annualized yield of a respectable 14%.
American Capital Agency reported a second-quarter dividend of $1.05 per share, down 16% sequentially. Although the firm’s dividend fell considerably, it still beat consensus estimates of about $1.00 per share. The $1.05 payment is less than the firm’s dollar roll income and net spread of $1.15 per share. American Capital Agency, therefore, had sufficient cash to pay out the dividend. The dividend yield works out to be around 18.4%, based on today’s price. This helps to buttress the firm’s solid reputation as an all-weather mREIT dividend play.
Interest rates seem to have stabilized, and it is quite likely that dividends for both firms will remain around these levels for the rest of the year. Although American Capital Agency takes the cake for higher absolute dividend yield of 18.4% compared to Annaly’s 14%, its dividend deterioration is outpacing Annaly’s at 16% vs. 11%. If the deterioration in dividends continues at these rates, American Capital Agency Corp. (NASDAQ:AGNC)’s payout will eventually be lower than Annaly Capital Management, Inc. (NYSE:NLY)’s.
Book value
Annaly’s stock is currently trading 12% below the most recently reported book value. American Capital Agency is trading at 11% below book.
The volatility of mortgage-backed securities prices has led to both stocks declining considerably in the third quarter. In the previous quarter, Annaly’s book valued declined roughly 18% while American Capital Agency experienced a nearly 20% decline. Annaly and its slightly more conservative strategy, therefore, lost slightly less book value and is the winner in this category.
The better value for investors
American Capital Agency Corp. (NASDAQ:AGNC) reported far worse earnings in the second quarter than Annaly. Although the firm has a larger interest rate spread in absolute terms, its spread remains stagnant while Annaly’s is expanding. Book values for both companies remain well above current stock prices. American Capital Agency pays a higher dividend than Annaly, but its dividend is falling at a faster pace.
At this point, Annaly may be the mREIT that offers the better value for investors.
The article The Better Option: American Capital Agency or Annaly? originally appeared on Fool.com and is written by Boniface Murigu.
Boniface Murigu has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
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