Dynex Capital's Historical Value Creation May Offer Insights Into Its Future Returns

Dynex Capital, Inc. (DX) is a mortgage real estate investment trust, or mREIT. The company invests in mortgage-backed securities, or MBS, securities whose income is based on the performance of pools of mortgages.

I’ve written two recent articles about mREITs Ladder Capital (LADR) and Anworth Mortgage (ANH). Both those articles were written because those mREITs look cheap. Dynex Capital does not look cheap. The company trades at a price to book ratio of 94%. In contrast, Anworth and Ladder have, respectively, P/B ratios a little over 60%. The market certainly seems to think it is a higher quality company than other mortgage REITs, given how much higher its valuation is.

To see if Dynex Capital is a high quality company, we can use the methodology I used in my previous mREIT articles. We can look at how much value the company has historically created for shareholders. This will help us predict the company’s future value creation, and thus the company’s possibilities for future share price growth and dividends. (Read More)

Anworth Mortgage's Value Creation Since Its IPO May Offer Insights Into Its Future Returns

Anworth Mortgage Asset Corporation (ANH) is a mortgage real estate investment trust, or mREIT. The company invests in residential mortgages as well as mortgage-backed securities, or MBS, securities whose income is based on the performance of pools of residential mortgages. Those securities include both agency-backed MBS whose performance is guaranteed by Fannie Mae (OTC:FDDXD) and Freddie Mac (OTC:FMCC), as well as non-agency MBS whose performance is not guaranteed. According to the company’s most recent quarterly report, over 70% of Anworth’s investments were in agency MBS.

By several metrics, Anworth’s stock looks cheap. The company’s price to book ratio on August 13th was 63%. This means each share of the company’s stock trading at $1.81 a share corresponded to around $2.85 of the company’s equity. Anworth also has a dividend yield of around 11%.

In that context, Anworth’s cheapness raises a question. Is it a high quality company I can “buy and hold” forever while it compounds my investment?

To see if Anworth Mortgage Asset Corporation is a high quality company, we can use the same methodology I used in my recent article about Prospect Capital. We can look at how much value the company has created for shareholders since its 1998 IPO. This will help us predict the company’s future value creation, and thus the company’s possibilities for future share price growth and dividends. (Read More)

Prospect Capital's Value Creation Since Its IPO May Offer Insights Into Its Future Returns

Prospect Capital Corporation (PSEC) is a business development company, or BDC. The company invests in middle market companies with an “enterprise value between $5 million and $1000 million,” according to the company's profile. Prospect invests in both the companies’ secured and unsecured debt as well as their equity.

By several metrics, Prospect’s stock looks cheap. The company’s price to book value ratio on July 31st was 63%. This means each share of the company’s stock trading at $5.01 a share corresponded to $7.98 of the company’s equity. Prospect also pays a monthly dividend of $0.06 per share, giving the company an annual dividend yield of over 14%.

Prospect Capital’s cheapness raises a question. Is it a high quality company I can “buy and hold” forever while it compounds my investment?

To see if Prospect Capital is a high quality company, we can use the same methodology I used in my May 2020 article about Ladder Capital. We can look at how much value the company has created for shareholders since its 2004 IPO. This will help us predict the company’s future value creation, and thus the company’s possibilities for future share price growth and dividends. (Read More)