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Impact of Share Buyback on Annaly Capital

Annaly Capital Management, Inc. (NLY) announced that its Board of Directors has authorized the repurchase of up to $1.5 billion of its outstanding common shares over a 12 month period.  Annaly currently has 975 million shares outstanding with a market cap of $15.59 billion.  The buyback is 9.62% of the current market cap.

Based on FY 2013 earnings projections, the buyback will have an EPS accretion of 10.64%.  By adding the accretion with the current dividend yield of 12.5% the total return will be 23% without changing the PE ratio.  It will be hard to find a better high yield investment with this type of potential.

Zacks Investment has Annaly rated as neutral or hold with a 12-month price target of 18.30.  The target price is 15.6% higher than the current market price.

The current low interest rate environment has reduced potential investment returns, only partially offset by low short-term funding costs.  Prepayment rates on residential mortgages have also recently increased as agencies complete programs to repurchase delinquent mortgages and stabilize housing markets.  As a result, we expect net interest margins to narrow moderately over the next 12 months. Longer term, we think Annaly’s conservative financial posture places it in a strong position to expand its portfolio of agency mortgage backed securities once investment markets become more attractive. We think Annaly can augment investment income with higher fees from an expanding portfolio of assets under management for third parties.

Q3 earnings are expected to be announced after market hours on October 29, 2012.  Investors should hold up new purchases until the Q3 results.

Here is a link to the best mortgage REITs for the next quarter.

Buy This Stock for a 16% Dividend Yield

New York Mortgage Trust (NYMT) has priced its underwritten registered public offering of 13.5 million shares of common stock at a public offering price of $6.89 per share.  Currently the shares are trading at $6.46 so investors can buy the stock below the IPO price.  One of the best times to buy shares is when they sale shares to raise funds.  Typically, the stock price will sell off when new shares are made public creating a cheaper buying price.

New York Mortgage will report Q3 earnings on October 30.  The Company reported Q2 net income attributable to common stockholders of $5.1 million, representing net income per weighted average share of $0.34 for the quarter ended June 30, 2012, as compared to$4.2 million of net income attributable to common stockholders and net income per weighted average share of $0.44 for the quarter ended June 30, 2011.

New York Mortgage has a current dividend yield of 16%.  The dividend was increased 8.0% in Q2 2012.  On September 18, 2012 the board of directors at New York Mortgage Trust approved a dividend of $0.27 per share.

Here are the recent analyst actions:

On October 1, 2012 Thomson Reuters/Verus upgraded NEW YORK MORTGAGE TRUST INC NEW from SELL to BUY.

On September 28, 2012 Ativo Research upgraded NEW YORK MORTGAGE TRUST INC NEW from FAVORABLE to MOST FAVORABLE.

New York Mortgage has an equity summary score of 9.8 out of 10 for a VERY Bullish outlook.  First Call analysts have a BUY recommendation with a 2.0 rating.

New York Mortgage has a 12-month price target of $8.

Iron Mountain to Pay a 11.7% Special Dividend

Iron Mountain (IRM) announced that it will give shareholders a special dividend of $700 million, or about$4.07 a share, in connection with its plan to convert to a real-estate investment trust.  This is a 11.7% dividend yield.

The dividend is an initial distribution that satisfies a requirement that Iron Mountain pay shareholders its accumulated earnings and profits of about $1 billion to $1.5 billion in connection with its potential conversion to a REIT. The conversion is expected to occur no sooner than the beginning of 2014.

The special dividend is payable on Nov. 21 to shareholders of record on Oct. 22. Shareholders can receive payment of the special dividend in stock or in cash totaling up to $140 million, or 20% of the total distribution.

“Today’s announcement marks an important milestone in our plan to convert to a REIT,” saidRichard Reese, Iron Mountain’s Chairman and Chief Executive Officer. “Iron Mountain is a great business with high returns and strong cash flow driven by consistent financial performance. This special dividend is consistent with our previous commitment to increase shareholder payouts, and our operating as a REIT will further enhance our ability to generate attractive total returns for our stockholders.”

New mREIT with High Yield and Strong Buy Rating

Western Asset Mortgage Capital Corporation (WMC) is a REIT that invests primarily in Agency RMBS, which are residential mortgage-backed securities for which the principal and interest payments are guaranteed by a U.S. Government agency (such as GNMA) or a U.S. Government-sponsored entity (such as FNMA or FHLMC).  The Company closed of its initial public offering (IPO) on May 15, 2012 with an initial stock price of $18.75.  The stock is currently trading at a 15% premium to the IPO price.

For the 47-day period within the quarter ended June 30, 2012, the Company earned net income of$0.41 per diluted share. During the period, the Company generated core earnings of $4.8 million, or$0.47 per diluted share.

As of June 30, 2012, the Company owned an aggregate securities portfolio equaling $1.92 billion in market value, comprised of $1.53 billion of 30-year fixed-rate Agency RMBS, $223.7 million of 20-year fixed-rate Agency RMBS, $76.8 million of fixed-rate collateralized mortgage obligations and $86.3 million market value of Agency interest-only and inverse interest-only strips.

On July 26, 2012, WAM Capital announced today that its Board of Directors has declared a cash dividend of $0.38 per share for the quarter.  This is an annual dividend yield of 7.02%.  The payout was 93% of EPS but will be 100% of EPS in coming quarters.

WAM Capital has a market cap of $219 million.  WAM Capital is projected to have $2.01 per share in earnings this year.  This is a PE of 9 and an annual dividend yield of 9.26% (based on 100% payout) this year.  The company is projected to grow earnings 52% to $3.06 in 2013.  This is an estimated forward PE of 7.1.

The company has an analyst rating of 1.5 (strong buy) with 8 analysts following.

Get In Early On This New REIT

Iron Mountain (IRM), the New Jersey-based document-storage firm, said that its board approved a plan for the company to convert to a real estate investment trust, or REIT.  Iron Mountain also boosted its dividend 8% for an annual payout of $1.08 a share. A quarterly dividend of 27 cents will be paid July 13 to stockholders of record June 22. Iron Mountain, one of several companies that have been weighing the decision to switch to REIT status, said the conversion would happen after Jan.1, 2014, pending U.S. government approvals. “The REIT structure provides stockholders with dividends from U.S. tax savings and other increases in distributable income that will enhance stockholder returns,” CEO Richard Reese said in a statement. Iron Mountain leases 64 million square feet of storage space around the world.

In accordance with tax rules applicable to REIT conversions, Iron Mountain expects to distribute accumulated earnings and profits (E&P) of approximately $1.0 billion to $1.5 billion to stockholders, to be paid out in a combination of at least 20% in cash and up to 80% in Iron Mountain common stock. The company expects it will distribute a significant portion of this E&P distribution in the fourth quarter of 2012. The company expects to distribute the balance over several years beginning in 2013 based, in part, on U.S. Internal Revenue Service (IRS) rules and the timing of the conversions of additional international operations into the REIT structure.

IRM is currently trading at $31.94, up from $28.40 prior to the REIT announcement this week.  The current target price for IRM is in the range of $36-40 following regulatory approval of the REIT conversion.

Barclays estimates Iron Mountain’s (IRM) planned conversion to a REIT could boost the records management and storage company’s value by $10/share.

William Blair Analyst Nate Brochmann believes benefits of conversion, include lower tax rate, more efficient financing, opportunity to shift capital structure toward equity, greatly outweigh costs, will enable IRM to increase returns to shareholders.  Based on simple dividend discount model, thinks there could be 40% upside to the stock due to conversion.  Given value he believes REIT conversion unlocks for shareholders, recommends investors purchase shares.

Iron Mountain (IRM) was initiated with an Overweight at Piper Jaffray with a price target at $35.

Annaly Capital (NLY) Still Rated Outperform

Annaly Capital Management (NLY) reported first quarter “core” EPS (fully diluted and after preferred dividend excluding realized and unrealized trading gains) of $0.44, in line with our estimate. Leverage increased during the quarter, but still remains below peers. Book value ended the quarter at $16.18, up 1% from the fourth quarter and 1% better than our estimate.

Estimates: We are raising our 2012 through 2014 core EPS estimates to $1.84 (from $1.80), $1.95 (from $1.85), and $1.95 (from $1.85) to reflect the higher ending period leverage. Our estimates assume that Annaly takes leverage to 6.5x by the end of 2012.

Valuation: Annaly is currently trading at a 1% premium to current book value and is yielding 13.5% on the current dividend.

Reiterate Outperform: Annaly has the potential to increase the level of returns through returning leverage to more historical levels.

Real Estate Investment Trusts (REITs) have continued to attract investors in 2012 as the U.S. housing market has begun to show signs of a long-awaited recovery. An improving economy and record-low mortgage rates have encouraged many potential buyers. U.S. single family home prices increased for the first time in nearly a year according to a recent survey Tuesday.

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