American Capital Agency Corp (AGNC) Cut Its 1Q 2012 Dividend 10.7%

It was only a matter of time until American Capital Agency Corp. (AGNC) cut its dividend.  AGNC was paying out more than they were earning for several quarters.  Their dividend payout ratio was over 100%.  I warned about this back on December 13th, 2011.

At that time faceless, nameless Wall Street analysts expected AGNC to earn $1.18 per share for the 4th quarter of 2011.  Their 4Q 2011 financials revealed that they only earned $0.99.  That pushed the dividend payout ratio all the way up to 141%.  This madness had to stop.  It finally did.

On February 6th, 2012 AGNC’s board of directors announced a 10.7% dividend cut.

They cut the dividend from $1.40 per quarter down to $1.25 per quarter for March 2012.  That breaks their streak of ten consecutive quarters of $1.40 dividend payments.


The Federal Reserve will likely buy more agency mortgage-backed securities in the future.  This will bid up the price of those securities.  That will eat into AGNC’s shrinking profits.  The cost of borrowing is increasing and the asset yield is decreasing.  You can read about that here in AGNC’s 4Q 2011 financials release:  

The dividend is not secure.  AGNC is leveraged 7.6 times.  Leverage giveth and leverage taketh away.  I expect another cut in a few quarters.

Disclosure: I don’t own American Capital Agency Corp. (AGNC).

Be seeing you!

Published in: on April 2, 2012 at 3:22 pm  Leave a Comment  

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