Annaly Capital Management, Inc. (NYSE:NLY) total return
| 2010 | 2011 | 2012 | 2013 – So Far | $1000 becomes | |
|---|---|---|---|---|---|
| Dividends during year | $2.65 | $2.44 | $2.05 | $0.45 | |
| Share price YoY change | -$0.77 | -$1.89 | -$2.93 | $0.61 | |
| Total Return | $1.88 | $0.55 | -$0.88 | $1.06 | |
| 10.7% | 3.1% | -5.5% | 11.9% | $1,206 | |
| S&P 500 | 14% | -1.1% | 12.7% | 17 | $1,486 |
American Capital Agency Corp. (NASDAQ:AGNC) total return
| 2010 | 2011 | 2012 | 2013 – So Far | $1000 becomes | |
|---|---|---|---|---|---|
| Dividends during year | $5.60 | $5.60 | $3.75 | $1.25 | |
| Share price YoY change | $2.32 | -$0.66 | $2.68 | -$0.35 | |
| Total Return | $7.92 | $4.94 | -$0.88 | $0.90 | |
| 30% | 38% | 22.7% | 3% | $2,267 | |
| S&P 500 | 14% | -1.1% | 12.7% | 17% | $1,486 |
What about the Future?
Recent minutes of the Federal Open Market Committee meetings revealed that some members of the committee are worried about potential losses on the Fed’s massive holdings of MBS. To stem such losses, the committee might have to taper asset purchases early before a serious improvement in the labour market.
Now, here is the problem, any entity that holds such a large portion of the market, is bound to significantly affect the whole market when it comes to the point of selling. The Fed in particular will have to sell $1.5 trillion in MBS (27% of the market) into a shallow market, which will cause prices to fall. Falling prices will mean higher yields and the Fed will have to wind down its huge portfolio into a seller’s market.
When the Fed comes to selling, yields of mortgage-backed securities will rise and mREITs will gain from a higher income on their assets again.
A high yield company that is not a mREIT
While mREITs are defined by their high yield, when a non-leveraged, non-financial company has such a high dividend yield, the company and the yield look risky, especially when the company operates in the technology sector.
| Metric | 2012 |
|---|---|
| Earnings-per-share | $0.28 |
| Dividend per share | $1 |
| Operating cash flow | $1,780 |
| Investing cash flow | -$1,100 |
| Dividends | $588 |
| Dividend cover by cash flow (operating-investing) | 1.2x |
| Free cash flow | $88.4 |
$US Millions
Windstream Corporation (NASDAQ:WIN)’s high dividend yield is not a worry as the payout is easily covered 1.2 times by the company’s operating cash flow, after the deduction of investing activities, indicating that the company could be a potential investment for a high yield seeking dividend investor.
Conclusion
Investors that are looking for extra yield can look to mREITs to provide them with a payout that is significantly above the market average. However, investors need to be aware that the Fed’s actions will have a serious knock on effect to their investments.
On the other hand, investors could look to Windstream Corporation (NASDAQ:WIN) to provide extra yield as the company’s payout is well covered by operating cash flow.
The article Stocks for the Dividend Investor, Part 2; High Yield originally appeared on Fool.com is written by Rupert Hargreaves.
Fool contributor Rupert Hargreaves has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
Rupert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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