American Capital Agency Corp.'s Crazy Idea Really Paid Off

Buying the stock of other mortgage REITs worked out very well for American Capital Agency Corp.

May 6, 2014 at 7:30AM


This past February, the CIO of American Capital Agency Corp. (NASDAQ:AGNC), Gary Kain, dropped a bombshell on the company's earnings call. For the first time, a mortgage REIT invested money in the stock of its rivals, rather than adding to its stable of mortgage-backed securities.

Analysts were surprised, to say the least. On the conference call, Kain wouldn't reveal which agency trusts were on his buying list, although a regulatory filing with the SEC a few days later showed that Hatteras Financial (NYSE:HTS) was one of the mystery companies. Kain noted at the 2014 Credit Suisse Financial Services Forum within the same week that, since the other companies involved in the stock purchases were not publicly held, he would not divulge their identities.

A big win
The move was a bold one, but it paid off handsomely. Kain remarked that the $400 million invested into other mREIT stocks has produced $50 million in both realized and unrealized gains during the first quarter. By any measure, that is a sweet return. Kain noted that $10 million was dividend income, and the remaining $40 million constituted 20% of American Capital Agency's book value for the first quarter.

Hatteras had a good first quarter, too, noting a jump in book value from the linked quarter despite a $0.50 dividend. Core earnings were up nicely, with Hatteras management reporting earnings per share of $0.64 per share compared to $0.51 for the previous quarter.

Investments in mREITs won't interfere with stock buybacks
Analysts seemed concerned with Kain's investment strategy, fearing that purchasing the stock of other mREITs will reduce American Capital Agency's own stock buyback program. On the conference call, Kain put those fears to rest. He noted that the two are not mutually exclusive and that the company is committed to its share repurchase program. He had also addressed this issue at the CS Financial Services Forum in February, noting that, essentially, the mREIT stock purchases were a "surrogate for mortgages", rather than repurchases of its own stock.

Kain has spent some time explaining and defending this move into buying competitors' stock, and the positive results should certainly help allay any concerns on the part of analysts and investors.

As Kain notes, faith in the management team  is a huge factor in this industry, and he has shown confidence in Hatteras' management ability by buying its stock. By the same token, management should be confident enough of its own ability to undertake such a novel approach in order to deliver value to its investors. And that, it would appear, is exactly what Kain and his team have done.

mREITs aren't the only great dividend plays
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Amanda Alix has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers