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Dividend.com analyzes the search patterns of our visitors each week. By sharing these trends with our readers, we hope to provide insights into what the financial world is concerned about and how to position your portfolio.
Readers’ attention these past two weeks shifted to mortgage real estate investment trusts, as many of these companies were caught unprepared by the widening yield spread of both Agency RMBS and non-Agency RMBS. As such, Invesco Mortgage Capital is first in the list and Chimera Investment is second. Third in the list is Occidental Petroleum, the heavily-indebted oil company that might be forced to announce an asset writedown. Last in the list is beer maker Anheuser-Busch Inbev, which is struggling with antitrust issues relating to its merger with Craft Brew Alliance.
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Invesco Mortgage Capital (IVR) has seen its viewership rise 49% these past two weeks, taking the first spot in the list. Invesco cut its monthly dividend in June from $0.50 per share to a symbolic $0.02, which still yields an annual 2.2%. Shares in IVR have lost nearly 80% year-to-date due to the market volatility in mid-March.
Like many other investors in structured products, Invesco was heavily hit by the widening of yield spreads of both Agency residential mortgage-backed securities (RMBS) and non-Agency RMBS. Agency RMBS have the full backing of the U.S. government and the risk of default is negligible.
To maintain adequate levels of liquidity, the heavily-indebted IVR has sold assets on the cheap and registered massive writedowns. Its book value fell to $5.02 per share in the first quarter of 2020 compared with $16.29 in the fourth quarter of 2019. Its total average assets decreased to $17.8 billion from $21.3 billion, while total borrowings declined to $16.5 billion from $19.7 billion.
Unsurprisingly, the company’s new strategy over the next quarter is to transition its capital into Agency RMBS investments, as according to CEO John Anzalone “low funding costs, Federal Reserve support via asset purchases and a steepening yield curve should benefit Agency RMBS.”
As of July 1, Invesco stock was trading at $3.66 per share, but analysts believe it has further room to fall. Bank of America analysts set a price target of $2.50, citing an imbalanced capital structure given the level of preferred stock and a potential dilutive capital raise.
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Chimera Investment(CIM), another mortgage investment trust, is second in the list this week with a 2% rise in viewership.
Chimera stock has lost 54% since the start of the year, outperforming peer Invesco. This was largely due to the fact that its portfolio was geared more toward Agency RMBS. When the crisis hit, Chimera sold its Agency RMBS assets to boost liquidity levels. To further strengthen its balance sheet, Chimera in mid-June secured a $400 million loan from Ares Management, which diversifies its financing sources from traditional repo markets that typically experience a lack of liquidity in times of stress.
Chimera was also forced to cut its dividend by a more manageable 40% in June, from $0.50 to $0.30 per share. Its forward yield is an impressive 11.3%, likely a sign of investor belief that the payout might take a further hit. The quarterly dividend is payable on July 31 for shareholders of record on June 22.
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Occidental Petroleum (OXY) shares the second position in the list with Chimera Investment, both experiencing a 2% rise in viewership.
Occidental shares have shed 57% since the beginning of the year, as the oil producer made an ill-timed bet by acquiring Anadarko Petroleum with a lot of debt. Not long after the acquisition that was widely criticized, including by activist investor Carl Icahn, oil prices collapsed, leaving the company with much less valuable assets.
Occidental warned last month that it might announce an asset write-down of up to $9 billion in the second quarter, while it will also restructure some of its debt to avoid filing for bankruptcy. It was also forced to shed its dividend to a symbolic $0.01 per share, amounting to a yield of 0.22%. To finance the Anadarko acquisition, the company borrowed $10 billion from Warren Buffett, and to preserve its cash it agreed to a deal under which it will pay the interest on preferred stock in shares.
Beer maker Anheuser-Busch (BUD) has taken the last place in the list this week with a tepid advance in viewership of 1%. Anheuser-Busch has seen its stock lose over 40% of its value as sales to bars and restaurants were heavily impacted by the coronavirus pandemic. The fall in these sales failed to offset rising demand from shoppers.
The pandemic came as the company was already facing competitive pressures from smaller craft breweries. At the same time, Anheuser-Busch is seeking to consolidate Craft Brew Alliance (BREW) by fully acquiring the company in which it owns a little less than a third of the shares. The deal agreed to in November 2019 is facing antitrust scrutiny from the Department of Justice, although Craft Brew agreed to sell its Kona Hawaii business to quell the DoJ’s concerns. The deal is still expected to be closed before the end of 2020.
This week, our readers were interested in the dividends of heavily-hit mortgage real estate investment trusts Invesco Mortgage Capital and Chimera Investment. Both REITs were forced to sell assets at fire-sale prices to boost liquidity, meet margin calls, and pay down debt, with their book value experiencing a significant decline. Meanwhile, Occidental Petroleum is seeing the consequences of its ill-timed bet on a massive acquisition for which it overpaid, as it cut its dividend and is on track to write down assets amid plunging oil prices. Finally, Anheuser-Busch is close to getting green light from the DoJ to complete the acquisition of Craft Brew Alliance.
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