I have been looking to allocate about 20-30% of my trading capital to some dividend paying stocks. I am attracted to a few REITS. The two names that I am looking at are ANH and NLY. These two reits in particular only invest in mortgage backed securities that are backed up by the government. Meaning they are only buying investing in MBS from names like Fannie Mae and Freddie Mac (GSE's). So lets take a look at ANH:
Anworth Mortgage Asset Corporation is a real estate investment trust. It invests primarily in United States agency mortgage-backed securities issued or guaranteed by United States government sponsored entities, such as Fannie Mae or Freddie Mac, or an agency of the United States government, such as Ginnie Mae, including mortgage pass-through certificates, collateralized mortgage obligations, and other real estate securities, on a leveraged basis. The company’s portfolio includes agency mortgage-backed securities comprising agency adjustable-rate mortgage-backed securities, agency hybrid adjustable-rate mortgage-backed securities, agency fixed-rate mortgage-backed securities, and agency floating-rate collateralized mortgage obligations. The company qualifies as a REIT for federal income tax purposes. It would not be subject to federal corporate income taxes if it distributes at least 90% of its taxable income to its stockholders. Anworth Mortgage Asset Corporation was founded in 1997 and is based in Santa Monica, California.
Below is weekly chart of ANH that goes already back to February of 2007.
ANH is currently trading at about $6.85 and has a dividend yield of 15.71%. That is a pretty hefty yield, and at this point you should probably be asking yourself why it is so high? But lets take a look at the dividend history and how this thing performed during the height of the financial crisis. They have paid a dividend consistently on a quaterly basis since June of 1998. Take a look at the dividend payment history chart that I created below:
So you can see from the above that the stock continued to pay a dividend throughout th financial crisis, but it dropped quite significantly. But it has been steadily increasing since about Jan of 2008. The question you have to be asking yourself is if the worst is over in the housing market? Or is there another shoe to drop? And if there is another shoe to drop, when do you think it is going to happen? I do think that the worst is over in the residential market, but of course I don't know for sure. But I like this name as I think that the government take a lot of the risk out of this stock and similiar names like it.
As mentioned in the company profile that I posted above. ANH utilizes leverage in order to magnify returns. But as you can see as the spread between what they borrow at and the return they recieve on the loans they are invested in can greatly effect the dividend on the common stock. Especially since the preffered shared holders get paid out first before common stock holders. So this is best seen towards the middle to end of 2005 as rates from their adjustable rate MBS reset vs their borrowing rate. If you want more certianty you can always purchase the prefered A or B shares, which get paid before any common shareholders. It also has a lot less volatility in the dividend that is paid out. Currently the Prefered A shares are paying a quaterly dividend of about $0.54 that has been constent since 2005 when they first sold these shares. But you are going to have to pony up more money for this increased safety vs the common stock.
For me I am more attracted to the common as the dividend yield is higher and the stock price is about a 4th the price of the prefered A shares. On top of that with the common you get to capture upside in the dividend in quaters or years that the company performs better. The downside is that when the company performs poorly your dividend will be adjusted to reflect that poor performance where the preffereds will still continue to recieve their dividend.
What about the P/E? ANH is currently trading with a p/e of 6.27. But more importantly is based on foward earnings of $1.19 it is trading at a p/e of 5.75.
When is the Common Stock dividend paid?Our Board of Directors meets to announce earnings and declare the dividend in April, July, October and December. The dividend is then paid in May (1st quarter payment), August (2nd quarter payment), November (3rd quarter payment) and January (4th quarter payment). As a REIT, we are required to pay out 90% of our earnings in the form of dividends in the year the earnings occur (the 4th quarter dividend is taxable in the year it is declared, even though it is paid in January of the following year). Therefore, our dividend payments will increase or decrease in relation to each quarter's earnings. To see a list of our historical dividends, please visit our Dividends page.
My Position:
The low over the past 6 months is $6.65 which was put in on 1/22/10. So I think that at current prices the the stock are attractive. So the question is how do I enter into the position. Instead of buying the stock outright today, I would rather use options by way of selling puts. I am looking to sell the Apr '10 $7.5 puts that are currently trading at $0.7 which would give me an average price of $6.80 if I were exercised. I chose Apr so that way if I am exercised I will receive the dividend. I do intend to get exercised but if I am not exercised I happily just keep the premium and look for my next play.
Anworth Mortgage Asset Corporation is a real estate investment trust. It invests primarily in United States agency mortgage-backed securities issued or guaranteed by United States government sponsored entities, such as Fannie Mae or Freddie Mac, or an agency of the United States government, such as Ginnie Mae, including mortgage pass-through certificates, collateralized mortgage obligations, and other real estate securities, on a leveraged basis. The company’s portfolio includes agency mortgage-backed securities comprising agency adjustable-rate mortgage-backed securities, agency hybrid adjustable-rate mortgage-backed securities, agency fixed-rate mortgage-backed securities, and agency floating-rate collateralized mortgage obligations. The company qualifies as a REIT for federal income tax purposes. It would not be subject to federal corporate income taxes if it distributes at least 90% of its taxable income to its stockholders. Anworth Mortgage Asset Corporation was founded in 1997 and is based in Santa Monica, California.
Below is weekly chart of ANH that goes already back to February of 2007.
ANH is currently trading at about $6.85 and has a dividend yield of 15.71%. That is a pretty hefty yield, and at this point you should probably be asking yourself why it is so high? But lets take a look at the dividend history and how this thing performed during the height of the financial crisis. They have paid a dividend consistently on a quaterly basis since June of 1998. Take a look at the dividend payment history chart that I created below:
So you can see from the above that the stock continued to pay a dividend throughout th financial crisis, but it dropped quite significantly. But it has been steadily increasing since about Jan of 2008. The question you have to be asking yourself is if the worst is over in the housing market? Or is there another shoe to drop? And if there is another shoe to drop, when do you think it is going to happen? I do think that the worst is over in the residential market, but of course I don't know for sure. But I like this name as I think that the government take a lot of the risk out of this stock and similiar names like it.
As mentioned in the company profile that I posted above. ANH utilizes leverage in order to magnify returns. But as you can see as the spread between what they borrow at and the return they recieve on the loans they are invested in can greatly effect the dividend on the common stock. Especially since the preffered shared holders get paid out first before common stock holders. So this is best seen towards the middle to end of 2005 as rates from their adjustable rate MBS reset vs their borrowing rate. If you want more certianty you can always purchase the prefered A or B shares, which get paid before any common shareholders. It also has a lot less volatility in the dividend that is paid out. Currently the Prefered A shares are paying a quaterly dividend of about $0.54 that has been constent since 2005 when they first sold these shares. But you are going to have to pony up more money for this increased safety vs the common stock.
For me I am more attracted to the common as the dividend yield is higher and the stock price is about a 4th the price of the prefered A shares. On top of that with the common you get to capture upside in the dividend in quaters or years that the company performs better. The downside is that when the company performs poorly your dividend will be adjusted to reflect that poor performance where the preffereds will still continue to recieve their dividend.
What about the P/E? ANH is currently trading with a p/e of 6.27. But more importantly is based on foward earnings of $1.19 it is trading at a p/e of 5.75.
When is the Common Stock dividend paid?Our Board of Directors meets to announce earnings and declare the dividend in April, July, October and December. The dividend is then paid in May (1st quarter payment), August (2nd quarter payment), November (3rd quarter payment) and January (4th quarter payment). As a REIT, we are required to pay out 90% of our earnings in the form of dividends in the year the earnings occur (the 4th quarter dividend is taxable in the year it is declared, even though it is paid in January of the following year). Therefore, our dividend payments will increase or decrease in relation to each quarter's earnings. To see a list of our historical dividends, please visit our Dividends page.
My Position:
The low over the past 6 months is $6.65 which was put in on 1/22/10. So I think that at current prices the the stock are attractive. So the question is how do I enter into the position. Instead of buying the stock outright today, I would rather use options by way of selling puts. I am looking to sell the Apr '10 $7.5 puts that are currently trading at $0.7 which would give me an average price of $6.80 if I were exercised. I chose Apr so that way if I am exercised I will receive the dividend. I do intend to get exercised but if I am not exercised I happily just keep the premium and look for my next play.
I Sold -5 Apr '10 $7.5 puts @ $0.70 for a total credit of $350. Like I said I intend to be exercised but am happy to just keep the premium.
Full disclosure, This is an investment that has the potential to turn into just a trade if the options expire worthless. Make sure you guys keep me honest.
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