Does American Capital Agency Make a Good House Warming Gift? (AGNC)

Traders usually take notice when an executive buys a boatload of its company’s stock. According to an article today from Forbes, the Chief Investment Officer for American Capital Agency (NASDAQ: AGNC), Gary Kain, purchased $655,000, or 20,000 shares, of his company stock, which comes out to $32.75 per share. An investor certainly would find the 15% yield on American Capital Agency stock intriguing. However, whether or not the dividend is safe from future reduction is a question that many will contemplate. Apparently the Chief Investment Officer had no worries on August 7. On September 11, the company rewarded investors by announcing the payment of a cash dividend in the amount of $1.25 to shareholders who owned the stock as of September 21.

Some investment research analysts do not appear to be all that enthralled with the high-yielding stock. Yesterday, Morgan Stanley downgraded the stock from “overweight” to “equal weight” with a price target of $37.00, which is still $4.00 above where American Capital Agency shares closed today. Last month, Jefferies Group and Zacks had also downgraded the stock. A total of 22 analysts carry an opinion on American Capital Agency shares with an average rating of “overweight”. The consensus price for the stock is $34.58.

Some investors today still felt spooked by the Morgan Stanley downgrade, which helped push share prices down 2.5% yesterday. The stock opened over a dime lower this morning and shares fell another 80 cents within the first 30 minutes of trading. The opening price also marked the high trade for the day. By the time traders started to unpack their lunches, the stock lurched toward its intraday low of $32.24 on heavy volume. No news could be attributed to the move except the general weakness in stocks and the real estate sector. American Capital Agency stock managed to rally during the afternoon. The stock ended the day with a loss of just under 2% to finish down 62 cents at $33.07. The number of shares exchanging hands more than tripled the average daily volume of 6.15 million shares.

For the last 12 months, shares prices for the real estate investment trust (REIT) company have climbed in a series of waves where a rally is followed by a sharp correction. Almost a year ago, shares hit an annual low when they traded for $26.86. The 52-week high of $36.77 came just a month ago. Traders will contemplate whether the recent 10% decline in the stock presents a buying opportunity or a warning sign that the year-long rally is about to end.

The company announced it would release third quarter earnings after the market closes on October 29. Estimates by research analyst look for earnings to fall in a range between $1.35 and $0.89 with an average of $1.12 per share.

American Capital Agency is a real estate investment trust (REIT) that invests in residential mortgage pass-through securities and mortgage collateral obligations. Government sponsored entities like Fannie Mae (OTC: FNMA) and Freddie Mac (OTC: FMCC) guarantee the principal and interest payments. As a REIT, the company will not pay any federal tax as long as 90% of the taxable income generated is paid out to shareholders. The company was founded in 2008 and it is located in Bethesda, Maryland

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Published by Alan Masterson

Alan has over 25 years of trading experience in the U.S. equity markets. He began his career in finance working on a program trading desk specializing in over-the-counter stocks. His career progressed from that point to his current position as senior trader on an institutional trading desk. In the evenings, Alan teaches economics at a local community college. He has contributed articles to various publications over the last six years, including feature articles for an economics magazine and various financial blogs. You may contact Alan via his email (alanmasterson@wallstreetpr.com) or his Google+ page (https://plus.google.com/103338576216002376250).