American Capital Agency: Yes, This Is Concerning

In this video, Motley Fool financial analysts Matt Koppenheffer and David Hanson discuss American Capital Agency's (NASDAQ: AGNC  ) decision to sell up to 57.5 million common shares, worth approximately $1.8 billion. Matt tells us that when you look at a mortgage REIT, the only way it differentiates itself from the competition is through the competence of its management. Though a move like this does return capital to shareholders, as the company recently bought back shares in November at a premium to what they are selling these shares for now, a transaction like this isn't free. The loss American Capital is going to take on this sale has to make investors wonder if management is really making the best decisions for the company. 

Annaly Capital Management, by comparison, is playing things much more conservatively. Annaly also has a history of paying huge dividends to shareholders. But there are some crucial issues investors have to understand about Annaly's business model before buying the stock. In this brand new premium research report on the company, our analyst runs through these absolute must know topics, as well as the future opportunities and pitfalls of their strategy. Click here now to claim your copy.

 


Read/Post Comments (4) | Recommend This Article (8)

Comments from our Foolish Readers

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  • Report this Comment On March 01, 2013, at 9:34 PM, sluggowski wrote:

    Maybe I'm the only one who thinks this is a red flag. Thanks Matt.

  • Report this Comment On March 03, 2013, at 5:35 PM, Serendipity1987 wrote:

    #1. The sale was above the then market value of their portfolio, NAV last reported as of 12/31 was near 31.70 however NAV has fallen by a lot since 12/31 just look at agency mbs prices. Thus the raise was conducted at a premium to NAV raising the NAV.

    #2. The newly purchased agency mbs at higher yields improves the net interest spread of the portfolio.

    #3. Management at agnc has grown book value from the teens to the 30s over 5 years while paying out a huge amount of dividends during that time. (1.40 per share per quarter for most of it, then dropped to 1.25 and sustained)

    #4. Net interest income plus drop income is like 1.18 per share last quarter, not entirely covering the dividend, but close... However they have over $2.00 per share in undistributed income... Agnc did not pay a special dividend last year as many mreits did but has instead decided to maintain a consistent dividend strategy over a 1 time payout strategy which helps them to keep a steady dividend by not paying out capital immediately which changes leverage etc.

    Summary: the capital raise was in the best interests of stockholders and improved the q1 and future quarter net interest margin as well as the NAV.

  • Report this Comment On March 04, 2013, at 9:36 AM, jonkai3 wrote:

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    #1. The sale was above the then market value of their portfolio, NAV last reported as of 12/31 was near 31.70

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    in a way you are arguing that they are raising NAV from below where the market has decided it was in the first place, and raising up to a level that is still below where the market was pricing it.

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    #3. Management at agnc has grown book value from the teens to the 30s over 5 years while

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    Management has grown book value by issuing shares at absurd levels above book value for 5 years, that has (as predicted) stopped on a dime. no more false gains by issuing shares at way above book value, and that is not going to change for this year or the next.... maybe never again...

    the days of false "economic gains" are over for AGNC shareholders....

  • Report this Comment On March 04, 2013, at 11:15 AM, jonkai3 wrote:

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    #1. The sale was above the then market value of their portfolio, NAV last reported as of 12/31 was near 31.70

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    by the way the sell was at $31.60, which was below the 12/31 reported book value...

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12/18/2014 3:59 PM
AGNC $22.00 Up +0.08 +0.36%
American Capital A… CAPS Rating: ****
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