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My High Dividend Stocks
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Warning: Annaly Capital Management (NLY) announces pricing of public offering of common stock.

Another day, another public offering of common stock by a leveraged REIT.  These companies including NLY, AGNC, and a few other high dividend stocks offer new shares to bring in money.  They use the money to leverage the purchase of 6x-9x more agency securities (back by the full faith and credit of the US govt – hahaha!!).  The people who run these companies are paid for the amount of equity they accumulate; shareholders do not come first.

Keynesian economics says deficits don’t matter.  They do.  The Greek government is learning this lesson the hard way.  When interest rates rise in the US for the same reasons these high yielding stocks will tank.  Until then they will pay high dividends.  Just know that there are significant risk with these stocks.

NLY has little earning power and a horrible balance sheet.

Disclosure: I don’t own NLY or AGNC.

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press release

July 11, 2011, 7:06 p.m. EDT

Annaly Capital Management Announces Pricing of Public Offering of Common Stock

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NEW YORK, Jul 11, 2011 (BUSINESS WIRE) -- Annaly Capital Management, Inc. /quotes/zigman/189739/quotes/nls/nly NLY -2.29% today announced the pricing of an underwritten public offering of 120,000,000 shares of its common stock at a price per share of $17.70 for expected gross proceeds of approximately $2.1 billion before expenses.

Annaly has also granted the underwriters a thirty-day option to purchase up to an additional 18,000,000 shares of common stock solely to cover overallotments. Annaly expects to use the proceeds of this offering to purchase mortgage-backed securities for its investment portfolio and for general corporate purposes, which may include additional investments and repayment of short-term indebtedness.

Credit Suisse Securities (USA) LLC is acting as the lead book-running manager for the offering. BofA Merrill Lynch, Morgan Stanley, UBS Investment Bank and RCap Securities, Inc. are acting as joint book-running managers.

Annaly has filed a shelf registration statement and prospectus with the Securities and Exchange Commission (SEC), and will file a prospectus supplement for the offering to which this communication relates. Before you invest, you should read the prospectus supplement and the accompanying prospectus and other documents Annaly has filed with the SEC for more complete information about Annaly and this offering. You may obtain these documents for free by visiting EDGAR on the SEC Web site at http://www.sec.gov . Alternatively, Annaly, the underwriters or any dealer participating in the offering will arrange to send you the prospectus supplement and accompanying prospectus if you request them by contacting:

Link to the original press release http://www.marketwatch.com/story/annaly-capital-management-announces-pricing-of-public-offering-of-common-stock-2011-07-11?reflink=MW_news_stmp

AGNC's liabilities are real and their book value must be questioned.

I wonder what Wunderlich Securities analysts are smoking?  These people are obviously devotees to Keynesian economics.  They believe that printing money to buy US Treasuries or agency MBS will only make the economic crisis worse later and destroy AGNC’s profitability.  The Federal Reserve is attempting to paper over the problem they created.  AGNC’s liabilities are real, but their asset values must be questioned.  The book value of AGNC is bogus.  I wrote about this recently:

http://bit.ly/EconFools

Anyone who assumes that AGNC’s book value as stated in their financial reports is trustworthy will be sorely mistaken when the next financial crisis hits.  The loss of book value can be caused by several factors.  They will happen.  It is just a matter of time.  The laws of economics assure it.

The structural problem in the world financial system remain unfixed.  Keynesian central bankers are inflating wildly forestall the day of reckoning.  The next financial crisis will destroy MBS REITs profitability and book values.  Enjoy the high dividend yields while they last.

So be warned that there is trouble on the horizon for the MBS high dividend stocks and plan your exit accordingly.  Annaly Capital Management (NLY) has decreased its dividend during the last two quarters.  I expect AGNC to do the same.

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Wunderlich Securities has a research report on housing finance and mortgage REITs. In the note, Wunderlich mentions American Capital Agency Corp. (NASDAQ: AGNC).”

In a note to clients, Wunderlich writes, "Market concerns over the pending termination of QE2 pressured the mortgage REITs. Though we believe the homeowner lacks the financial flexibility to carry the economy out of the ongoing sluggish economy, we do expect that interest rates could tend to rise through May and the end of this round of easing. At the same time, we believe that easing will continue, though perhaps in different forms. For example, a policy to keep mortgage rates low could be executed through purchases of agency MBS, which could sustain liquidity in the housing finance secondary market. Higher benchmark rates could put pressure on book value and tighten spreads, but we believe that relatively high dividends in our coverage universe will be sustainable. With dividends providing price support, we expect the group to stage a slow recovery to an average 15% premium to trailing book value."”

Shares of AGNC lost 17 cents on Friday to close at $28.53, a loss of 0.6%.

Read more: http://www.benzinga.com/analyst-ratings/analyst-color/11/04/1010248/wunderlich-securities-discusses-housing-finance-and-mort#ixzz1JtQ8Nw1C