American Capital Agency Corp. (AGNC) issued a press release today that focuses on the rescheduling of its annual meeting of stockholders. The press release failed to mention the inclusion of its 2010 annual report available from the link to the proxy materials. Follow this link to download the annual report:
www.AGNC.com/2011proxymaterials
The annual report can be downloaded in PDF format. I will read through it and begin blogging on new information that could jeopardize AGNC’s high dividend yield.
Why did AGNC delay the stockholders meeting? According to them they wanted to give stockholders additional time to consider and vote on the amended proposal. What is special about the amended proposal?
“… and to modify the requested increase in the Company's authorized shares of common stock. The amended proposal now only requests an increase in the authorized number of shares of the Company's common stock to 300,000,000 instead of 500,000,000. “
AGNC has 128.83 million shares currently outstanding. It is currently paying a $1.40 quarterly dividend on those shares. That totals $180.36 million dollars per quarter in dividend payments. The company must periodically issue new shares of common stocks, to bring in capital, in order to leverage around 8x, to buy the agency securities yielding an average of 3.44% with repurchase agreements costing an average of 1.02%, to keep the difference, and to pay a whopping dividend of $1.40 per share per quarter.
It is a Catch 22 situation. The trouble is that each additional outstanding share comes with an expectation of a large cash dividend. The huge 18% dividend yield is the main reason that investors speculators are purchasing shares of AGNC. The more shares the harder it is to keep the dividend the same or growing.
Let’s assume for a moment that AGNC issues all the shares it can until it hits the 300 million limit proposed. Will the company be able to sustain its $1.40 quarterly dividend? Heck no! 300 million shares times $1.40 per share equals $420 million in dividend payments per quarter or $1.6 billion per year.
AGNC only earned $177 million in net interest income in 2010. AGNC still wouldn’t have enough income to pay the $1.40 quarterly dividend even if it was able to triple its net interest income in 2011 to $531 million. Couple this reality with an increasing risk of higher interest rates and AGNC’s current price of $30 per share looks like it has less upside than downside.
Disclosure: I don’t own AGNC; nor do I ever plan to. It is a house of misallocated cards.
American Capital Agency Corp. Reschedules 2011 Annual Meeting of Stockholders
BETHESDA, Md., May 25, 2011 /PRNewswire/ -- American Capital Agency Corp. (Nasdaq: AGNC) ("AGNC" or the "Company") announced today that it has rescheduled its 2011 annual meeting of stockholders, originally scheduled for May 31, 2011. The new meeting date and time is Friday, June 10, 2011 at 9 a.m. (ET). The annual meeting will be held at AGNC, located at 2 Bethesda Metro Center, 14th Floor, Bethesda, Maryland 20814.
The Company also announced that it has supplemented its proxy statement for the 2011 annual meeting to amend the charter amendment proposal to eliminate the proposed increase in the Company's authorized shares of preferred stock and to modify the requested increase in the Company's authorized shares of common stock. The amended proposal now only requests an increase in the authorized number of shares of the Company's common stock to 300,000,000 instead of 500,000,000. The Company rescheduled its annual meeting in order to provide its stockholders with additional time to consider and vote on the amended proposal.
The annual meeting will be held for the purposes set forth below.
1. To elect the Board of Directors, with each director serving a one-year term and until his successor is elected and qualified;
2. To approve an amendment to the Company's Amended and Restated Certificate of Incorporation to increase the total authorized number of shares of common stock from 150,000,000 to 300,000,000;
3. To ratify the selection of Ernst & Young LLP to serve as the Company's independent public accountant for the year ending December 31, 2011; and
4. To transact such other business as may properly come before the meeting or any adjournment thereof.
The Board of Directors of the Company has recommended a vote "FOR" all of the director nominees and "FOR" proposals 2 and 3 above.
Formal notice of the rescheduled meeting and the supplement to the Company's proxy statement and revised proxy card are being mailed today to the Company's stockholders. More information on the items to be discussed at the meeting can be found in the Company's proxy statement, which is available at www.AGNC.com/2011proxymaterials.
Stockholders of record at the close of business on April 11, 2011 are entitled to notice of, and to vote at, the 2011 annual meeting and any adjournment of the meeting. If you wish to vote shares held in your name or attend the annual meeting in person, please register in advance by emailing Investor Relations at IR@AGNC.com or by phone at (301) 968-9300. Attendance at the 2011 annual meeting will be limited to persons presenting proof of stock ownership on the record date and picture identification. If you hold shares directly in your name as the stockholder of record, proof of ownership could include a copy of your account statement or a copy of your stock certificate(s). If you hold shares through an intermediary, such as a broker, bank or other nominee, proof of stock ownership could include a proxy from your broker, bank or other nominee or a copy of your brokerage or bank account statement. Additionally, if you intend to vote your shares at the meeting, you must request a "legal proxy" from your broker, bank or other nominee and bring this legal proxy to the meeting.
For further information or questions, please do not hesitate to call the Company's Investor Relations Department at (301) 968-9300 or send an email to IR@AGNC.com.
Original link to the press release: http://www.prnewswire.com/news-releases/american-capital-agency-corp-reschedules-2011-annual-meeting-of-stockholders-122583503.html
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