The ARMOUR Residential REIT Dividend Raise To 18.3% Annually Is A Good Sign
Jul. 30, 2015 8:52 AM • arr
- ARR pays a 17.8% Dividend. With the 8 for 1 reverse split on July 31, 2015 the dividend will be $0.33 per month (18.3% annually).
- The ARR management turn around seems to be occurring. ARR outperformed mortgage REIT peers AGNC and CYS in Q2 2015.
- ARR would seem to be continuing its good performance in Q3 2015 so far.
- Interest rates may be flat to down for the rest of 2015. This may help ARR retain MBS book value. Long TBA positions do better in this environment also.
ARMOUR Residential REIT Inc. (NYSE:ARR ) is an Agency mortgage REIT. It invests in Agency hybrid adjustable rate, adjustable rate, and fixed rate RMBS. Agency RMBS, especially fixed rate Agency RMBS, usually go down in value when interest rates go up and vice versa. In Q4 2014, the 10-year U.S. Treasury Note yield fell from 2.49% on September 30, 2014 to 2.17% on December 31, 2014. This should have meant an increase in book value for ARMOUR Residential REIT Inc. in Q4 2014. After all, bonds usually go up in value as interest rates decline. Instead, ARR's book value fell from $4.58 on September 30, 2014 to $4.39 per common share on December 31, 2014. This was about a -4.1% drop in book value for the quarter (or a -16.6% drop if annualized). After a lesser drop in the 10 year US Treasury Note yield of
-25 bps in Q1 2015, ARR lost -$0.25 per share in book value to $4.14 per common share. Again the expectation would have been for a slight gain, although the volatility in Q1 might have normally dictated a roughly flat quarter in book value terms.
In Q2 2015 the 10 year US Treasury Note yield rose from 1.92% on March 31, 2015 to 2.35% on June 30, 2015 (+43 bps). One would normally expect bonds (or MBS in this case) to lose value under such a scenario. ARR did lose value to $3.96 per common share from $4.14 per common share at the end of Q1 2015 (-$0.18 per common share). Some might continue to gripe that ARR just continued its losing ways. However, even with hedges most largely fixed rate Agency mortgage REITs lose money when interest rates rise. A -4.34% loss in book value for Q2 is not a terrible performance by ARR. When you consider it paid a $0.12 per common share dividend for the three months of Q2 2014, its total economic loss for Q2 2015 was only -$0.06 or -1.45% for Q2 2015. That is a decent result for a leveraged bond fund when interest rates are spiking.
Unlike other quarters when just about every mortgage REIT outperformed ARR, in Q2 2015 ARR outperformed many of its peers, including blue chip American Capital Agency Corp. (NASDAQ:AGNC ) and CYS Investments Inc. (NYSE:CYS ). Plus ARR paid the highest dividend, while doing this (see the table below).
Yearly Dividend at the close June 30, 2015