Thursday, February 9, 2012

4Q2011 at MTGE: AGNC All Over Again, And Better

After MTGE's $20 IPO, the Jaded Consumer followed the company with optimism, and I began investing at $16.75 after the ex-dividend date for its $0.20 stub-quarter dividend. After MTGE announced the size of its first full-quarter dividend, the Jaded Consumer wrote an above-average-readership article at Seeking Alpha, making the call that MTGE's total return wasn't just $0.80/sh in quarterly dividends but would include over a dime per quarter in reinvestment – churning out solid dividends atop a growing base of capital investment capable of driving share price north.

With MTGE's first full-quarter results, it appears ACAS' MTGE-managing team is following the same successful playbook it fine-tuned working on AGNC. The earnings are north of The Jaded Consumer's conservative estimates, the NAV is over $20 as expected, but – best of all – the reinvestment of undistributed income is much more than the Jaded Consumer was willing to predict in a publicly-viewable place. The result? As of this morning, MTGE at least briefly traded above its just-published December 31 NAV of $20.87.

MTGE is performing like AGNC, but faster. Very nice.

What does this mean for MTGE's manager, ACAS? Having invested $40 million in a private sale at the moment of MTGE's public launch, ACAS became a shareholder of 2 million shares, which pay a growing dividend atop an increasing NAV. To the extent MTGE comes (with a few more quarters of outstanding performance) to trade consistently at the sort of NAV premium frequently seen at AGNC, ACAS' investment will be looking pretty smart even without considering the monthly management fees it collects from MTGE in its role as manager. To the extent MTGE trades above NAV, ACAS has an incentive to issue more MTGE (above NAV), driving NAV upward beyond even the extent of reinvestment (and tax-free to MTGE!). Frankly, I hope as an ACAS shareholder that it keeps its shares. I think I'm going to like this ride.

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