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Wednesday, December 05, 2012 6:25:17 AM
Additionally, the company's charter allows Armour the flexibility to include non-Agency securities into its MBS portfolio. Therefore, I expect the company to tilt its MBS portfolio towards high yielding non-Agency securities under the current economic situation.
MBS Holdings
The company invests primarily in hybrid ARM and fixed rate residential mortgage backed securities that are guaranteed by any government sponsored Agency. Looking at the current situation where the Fed is committed to purchase Agency MBS, the shareholders of Armour Residential approved and amended the company's charter to include non-Agency in the MBS portfolio. This flexibility will allow the management to drive the company smoothly through the current challenging environment. At the end of the third quarter, the company was exclusively invested in Agency MBS. However, given the situation, I believe addition of high yielding non-Agency MBS will benefit Armour Residential by expanding its net interest margin.
Insider Activity
Over the past 3 months 20 insider purchases were conducted by some of the top officials of Armour Residential. On November 15th alone, the Chairman, Co-Chief Executive, a Director, the President and the CFO of the company purchased stocks worth $90,550. This heavy insider activity reflects the company's top officials' confidence in Armour Residential's future.
Are the Elevated Shareholder Distributions in Danger?
Besides offering one of the highest dividend yields, the company offers another benefit of paying dividends on a monthly basis. Armour Residential pays a monthly dividend of $0.09 per share, which makes the annual dividend yield of 15.4% very attractive to income oriented investors. I will attempt to determine the company's dividend sustainability by looking at its dividend coverage ratio and its projected net interest income's interest rate sensitivity.
The following table gives a clear picture of the cash dividend coverage ratio of the past four quarters. The company paid $85.4 million in dividends the last quarter, while it generated $105.8 in operating cash flows. The cash dividend coverage ratio for the most recent quarter comes out to be 1.24 times, while the average cash dividend coverage ratio of the past four quarters remained at 1.1 times.
(click to enlarge)
Looking from the interest rate perspective, the company can sustain its dividends. According to the company's latest SEC filings, the projected net interest income will decline by 3.97% if the interest rates plunge 50 basis points. Armour Residential generated $97.5 million in net interest income during the most recent quarter. Assuming the interest rates decline by 50 basis points, the company will generate $93.6 million, which is still sufficiently above the most recent quarter's dividend payment of $85.4 million.
Both perspectives reveal that the company has sufficient financial muscle to continue its monthly dividends in the near future.
Attractive Valuations
Armour Residential is trading at an 11% discount to its third quarter book value. Compared to this, MFA Financials (MFA) is trading at an 8% discount to its book value. Both the mortgage REITs have similar market cap which is why MFA is considered for comparison.
Comparatively, the large cap mortgage REITs such as Annaly Capital Management (NLY) and American Capital Agency (AGNC) trade at 12% and 3% discounts to their respective book values.
Recent ARR News
- ARMOUR Residential REIT, Inc. Announces Q2 Results and June 30, 2024 Financial Position • GlobeNewswire Inc. • 07/24/2024 08:15:42 PM
- ARMOUR Residential REIT, Inc. Announces August 2024 Dividend Rate per Common Share • GlobeNewswire Inc. • 07/23/2024 08:20:00 PM
- ARMOUR Residential REIT, Inc. Second Quarter 2024 Webcast Scheduled for July 25, 2024 • GlobeNewswire Inc. • 07/23/2024 08:15:00 PM
- ARMOUR Residential REIT, Inc. Confirms July 2024 Common Share and Series C Preferred Share Dividends • GlobeNewswire Inc. • 07/01/2024 08:15:00 PM
- ARMOUR Residential REIT, Inc. Announces Guidance for July 2024 Dividend Rate per Common Share • GlobeNewswire Inc. • 06/24/2024 08:15:00 PM
- Form 8-K - Current report • Edgar (US Regulatory) • 06/14/2024 08:11:48 PM
- Form 8-K - Current report • Edgar (US Regulatory) • 05/31/2024 08:21:48 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 05/30/2024 08:27:37 PM
- ARMOUR Residential REIT, Inc. Announces June 2024 Dividend Rate Per Common Share • GlobeNewswire Inc. • 05/30/2024 08:15:00 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 05/23/2024 08:43:32 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 05/23/2024 08:37:48 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 05/23/2024 08:34:49 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 05/16/2024 08:01:21 PM
- Form 8-K - Current report • Edgar (US Regulatory) • 05/13/2024 08:12:02 PM
- ARMOUR Residential REIT, Inc. Announces Q1 Results and March 31, 2024 Financial Position • GlobeNewswire Inc. • 04/25/2024 08:15:00 PM
- ARMOUR Residential REIT, Inc. Announces May 2024 Dividend Rate Per Common Share • GlobeNewswire Inc. • 04/24/2024 08:20:00 PM
- ARMOUR Residential REIT, Inc. First Quarter 2024 Webcast Scheduled for April 26, 2024 • GlobeNewswire Inc. • 04/24/2024 08:15:00 PM
- ARMOUR Residential REIT, Inc. Confirms April 2024 Common Share and Series C Preferred Share Dividends • GlobeNewswire Inc. • 04/01/2024 08:15:00 PM
- ARMOUR Residential REIT, Inc. Announces Guidance for April 2024 Dividend Rate Per Common Share • GlobeNewswire Inc. • 03/25/2024 08:15:00 PM
- ARMOUR Residential REIT, Inc. Names Sergey Losyev and Desmond Macauley as Co-Chief Investment Officers • GlobeNewswire Inc. • 03/18/2024 09:55:30 PM
- ARMOUR Residential REIT, Inc. Announces Retirement of Founder and Co-CEO Jeffrey J. Zimmer • GlobeNewswire Inc. • 03/15/2024 10:40:10 PM
- ARMOUR Residential REIT, Inc. Announces Chief Financial Officer Transition • GlobeNewswire Inc. • 03/13/2024 10:55:17 PM
- ARMOUR Residential REIT, Inc. Announces Updated Estimated Book Value • GlobeNewswire Inc. • 03/01/2024 09:21:11 PM
- ARMOUR Residential REIT, Inc. Files Form 12b-25 With the Securities and Exchange Commission • GlobeNewswire Inc. • 03/01/2024 09:20:37 PM
- ARMOUR Residential REIT, Inc. Announces Preliminary Unaudited Q4 Results and December 31, 2023 Financial Position • GlobeNewswire Inc. • 02/14/2024 10:26:01 PM
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