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Can CYS Investments Keep Its Dividend Going This Quarter?

By Dan Caplinger - Apr 15, 2013 at 2:50PM

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Keeping earnings up is a key way to finance its payout.

On Wednesday, CYS Investments (NYSE: CYS) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed kneejerk reaction to news that turns out to be exactly the wrong move.

As a real estate investment trust focusing on mortgage-backed securities, CYS has benefited from the big tailwinds that the low-interest rate environment has provided the industry for years. Yet some increasingly fear that those lucrative days may be coming to an end. Let's take an early look at what's been happening with CYS Investments over the past quarter and what we're likely to see in its quarterly report.

Stats on CYS Investments

Analyst GAAP EPS Estimate

$0.27

Change From Year-Ago GAAP EPS

(59%)

Interest Income Estimate

$92.04 million

Change From Year-Ago Interest Income

41%

Earnings Beats in Past 4 Quarters

3

Source: S&P Capital IQ.

Will CYS Investments keep its earnings strong?
Analysts have been mixed in their views of CYS over the past few months, with two analysts downgrading the REIT back in February, but one of them reversing ground and upgrading it just last week. The stock, though, has gone pretty much nowhere since early January, with its quarterly dividend just about perfectly offsetting a drop in its share price.

CYS isn't the best-known mortgage REIT in the industry, but it presents an interesting bargain right now. With shares of CYS trading well below its net asset value of $13.31, the REIT has a margin of safety that you won't find with bigger rivals. Both Annaly Capital (NLY -1.42%) and American Capital Agency (AGNC -1.43%) trade at or above book value, compared to about a 7% discount at current prices for CYS.

But one problem that CYS has faced lately is a declining dividend. Its most recent payout of $0.32 was 20% below its previous regular dividend, reflecting the pressure that the Federal Reserve's ongoing purchases of mortgage-backed securities have put on mortgage REITs.

Longer-term, another obstacle CYS may face could come in the form of heightened regulation. Watching the expanding balance sheets of Annaly and American Capital Agency begin to dominate the industry, regulators see the potential for systemic risk and could seek to treat them as traditional mutual funds. That could kill their leverage-based models and bring their lucrative dividend yields to an end.

In CYS's quarterly report, watch closely for signs that the company may seek to expand its balance sheet once again. With the company having done dilutive secondary offerings in the past, the last thing investors want to see right now is new share issuance when the REIT is trading at a discount. 

Click here to add CYS Investments to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

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Stocks Mentioned

Annaly Capital Management, Inc. Stock Quote
Annaly Capital Management, Inc.
NLY
$6.27 (-1.42%) $0.09
AGNC Investment Corp. Stock Quote
AGNC Investment Corp.
AGNC
$11.72 (-1.43%) $0.17

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