American Capital Agency Declares $1.40 First Quarter Dividend. Where is the money coming from?

American Capital Agency Corp. (AGNC) just declared another $1.40 quarterly dividend.  Where are they getting the money to cover this dividend?  They are not earning enough income to cover their dividend.  Here is an excerpt of what a wrote after AGNC released 4Q2010 earnings a few weeks ago:

·         American Capital Agency Corp. (AGNC) reports $1.26 net income per share, excluding $1.24 of other income (mostly the sale of agency securities and derivatives paying off).  AGNC’s earning power is less than their dividend payments.

·         They paid a $1.40 dividend for 4Q2010.  Their net income doesn’t cover the dividend.  Dividend payout ratio was 111% excluding the irregular income items.

They can continue issuing new shares to raise capital, but then the total dividend payment is bigger and they would have to lower the dividend rate per share.  This can't go on too many quarters longer.  The stock price is going to tumble when they cut their dividend and the management knows it.  They are kicking the can for as long as they can.

This high dividend stocks does not have enough earning power to sustain a $1.40 per share dividend and it has a weak balance sheet.

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American Capital Agency Declares $1.40 First Quarter Dividend

 

BETHESDA, Md., March 7, 2011 /PRNewswire/ -- American Capital Agency Corp. (Nasdaq: AGNC) ("AGNC" or the "Company") announced today that its Board of Directors has declared a cash dividend of $1.40 per share for the first quarter 2011.  The dividend is payable on April 27, 2011 to common shareholders of record as of March 23, 2011, with an ex-dividend date of March 21, 2011.

 

Link to original article: http://www.prnewswire.com/news-releases/american-capital-agency-declares-140-first-quarter-dividend-117541123.html