Although some of the financial stocks listed in the table linked here have already cut their dividends, the "dividend yields soar" story outlined beside it is basically sound. The question is simple: which companies have bogus Yahoo-reported dividend yields based on past dividends that were supported by business models that died with the subprime implosion, and which ones have solid revenues to lead them forward?
It's also worth noting that the authors seem to rely on third party declarations of the stocks' fields of business. American Capital Agency (AGNC) is for example missing, presumably because it is classified for tax purposes as a REIT, when in fact its business depends on identifying mortgage products whose price have been pushed to irrational lows by the subprime disaster that was already well understood before ACAS dreamt up the AGNC investment vehicle. AGNC's yield is not definitely knowable -- heck, future dividends are theoretically impossible to know -- but based on what the shares paid as a dividend after less than a month of investment one might calculate a quarterly dividend north of $0.90 a share, which isn't bad for a stock trading at $14.
So I caved in and bought AGNC on the strength of ACAS (its manager) having a great track record with commercial mortgage due diligence. This isn't a short-term play, but a bet that eventual price rationalization will create not just holding profits (from anticipated dividends) but a possibility of trading profits if I should want to exit. Eventually, grossly underpriced mortgage instruments have got to run out, and I'll prefer to have that money in something like ACAS, which is more flexible for hunting out opportunity. Of course, by the time prices rationalize in the mortgage market, AGNC's corporate documents could be amended by shareholder agreement to give management a broader mandate for investment in things that are more timely. ACAS won't want to dissolve an entity that is producing good fee income, and as owner of 7.5 million shares of AGNC, ACAS has little incentive to allow its returns to become mediocre.
Thoughts on good dividend opportunities? What companies have a great but unrecognized story? Dish!
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