Three Reasons to Buy This mREIT: Anworth Mortgage Asset Corporation (ANH)

Prepayments

Anworth reported prepayment speeds of 26% for its Agency and non-Agency MBS for the fourth quarter. This remains flat compared to the linked quarter. However, the prepayment speed for its adjustable-rate and hybrid securities decreased from 26% at the end of the third quarter to 25%.

In comparison, CYS reported relatively slow prepayment speeds for its MBS portfolio. The prepayment speeds as represented by conditional prepayment rate for CYS, AGNC and NLY were 17.6%, 10% and 19%, respectively. American Capital and Annaly Capital are exclusively invested in fixed rate mortgage backed securities of varying maturities.

Book Value

Like the rest of its peers, Anworth reported a sequential decline in its book value. The book value at the end of the fourth quarter declined 4.16% to $7.14 per share. In comparison, American Capital Agency’s book value decreased 2.6%, while Annaly Capital Management reported a 4.5% decline in its book value at the end of the fourth quarter.

Conclusion

I rate the shares of Anworth Mortgage an outperform on a diversified MBS mix, elevated dividend yield of 9.7% and its attractive relative valuations. Anworth is trading at a 13% discount to its book value compared to 7% discounts for Annaly Capital and CYS Investments. American Capital Agency is trading in line with its book value.

The article Three Reasons to Buy This mREIT originally appeared on Fool.com and is written by Adnan Khan.

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