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Benefit from Bernanke's Mortgage-Backed Securities Plan

When it appeared that the Fed might dump (sell) its hoard of MBS, investors in the Mortgage REITS like NLY worried that would have driven the value of its MBS portfolio as interest rates would rise.

That fear has subsided now that Dr. Bernanke is saying things like, "We're quite comfortable that we can exit by selling its MBS or letting them mature in a way that is both smooth and in which we provide lots of information to markets in advance, so they will know what's coming and be able to anticipate."

Looking at the five-year chart below, you'll most likely conclude that now may be a good time to consider owning shares of NLY. You might want to "scale in" and do some Jim Cramer-style "schnitzeling." Keep in mind that NLY has already lowered its dividend due to "yield compression." Up to now that's impacted its trailing twelve month "cash dividend payout ratio", which I expect will improve.

NLY Chart NLY data by YCharts

This compression has caused NLY to increase leverage to generate enough dividends. Its leverage is still not as high as their biggest competitor (market cap of $10.73 billion) which is American Capital Agency (AGNC - Get Report), which is being sold off after announcing that it sold 50 million common stock shares.

The share offering netted $1.58 billion in gross proceeds, which AGNC said it plans to use to acquire more agency securities and for general corporate purposes. Yesterday, shares dropped 3.5% on 10-times-average daily volume to close around $31.71. Here's a similar chart to the NLY chart above. AGNC Chart AGNC data by YCharts

With a yield-to-price of 15.8% and its cash dividend payout ratio so low (technically quite comparable to NLY's payout ratio), yield-chasing investors may prefer AGNC, although we can't rule out an unexpected dividend decrease. Both NLY and AGNC don't report earnings until April 29.

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