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)