ARMOUR Residential REIT, Inc. (ARR), Javelin Mortgage Investment Corp (JMI): Insiders Buying Doesn’t Always Mean The Same Thing

Further, I don’t see any repositioning effort taking place in the investment portfolio. With nothing going in the favor for MFA Financial, Inc. (NYSE:MFA), you can see what signals insiders want to give.

Similarly, ARMOUR Residential REIT, Inc. (NYSE:ARR) is a mortgage REIT for which nothing has been going in its favor. It reported around an 8% plunge in its book value at the end of the first quarter, and till now no repositioning efforts have been made for its investment portfolio either. During these times, when we see rates are climbing, you can expect ARMOUR Residential REIT, Inc. (NYSE:ARR) to report a 4% decline in its net interest income. While its current cash dividend coverage ratio of 1.15 times can absorb some hit, I believe it’s not sufficient in the long run. Therefore, the insider buying at ARMOUR Residential REIT, Inc. (NYSE:ARR) is giving a false signal.

Same is the case with Javelin Mortgage Investment Corp (NYSE:JMI). Javelin Mortgage Investment Corp (NYSE:JMI) has positioned its portfolio in a way that it will benefit from declining interest rates. However, the opposite will be happening during the second quarter of the current year. Therefore, I expect up to a 7.6% decline in its projected interest income. The only positive I could come up with was its healthy cash dividend coverage ratio of 1.4 times. Therefore, even after a moderate hit, you can expect the company to continue its current dividends. However, the drop in book value, coupled with the anticipated decrease in net interest income, should be a cause of concern for the insiders rather than a cause of growth.

Conclusion

I recommend investors dig deeper into every insider buy, and the respective company’s growth potential and don’t get fooled by insiders’ signals.

Adnan Khan has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Adnan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Insiders Buying Doesn’t Always Mean The Same Thing originally appeared on Fool.com is written by Adnan Khan.

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