Capstead Mortgage, Dallas, a publicly traded REIT that invests in agency MBS, cut its third quarter dividend by 28%, down $0.26 per share.
In the second quarter it paid a dividend of $0.36. The news on the dividend cut – announced late Thursday -- sent its share price tumbling almost 5% on Friday morning.
A research note from Sandler O'Neill says "While management had indicated on its 2Q earnings call that 3Q earnings would continue to be negatively impacted by the last wave of Fannie Mae buyouts, we had not expected the impact to be as severe as the dividend suggests."
In recent quarters Fannie (and Freddie Mac) has been purchasing delinquent mortgages out of MBS, focusing on higher coupon mortgages first.
Sandler said the lower coupon mortgage securities held by Capstead were among the last to be purchased out of the pools. (Capstead invests mostly in ARMs.)
Still, Sandler said it is lowering its earning estimates on the company. "We expect EPS and the quarterly dividend to rebound in 4Q as the company redeploys cash received from the Fannie Mae buyouts and premium amortization declines, but expect yield compression to continue to pressure earnings into next year."
