Author Topic: Investing for dividends - WMC  (Read 2115 times)

Mother Fussbudget

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Investing for dividends - WMC
« on: May 09, 2016, 11:42:16 PM »
I've been test-driving an investment in WMC - Western Asset Mortgage Capital Corp.
I spotted this fund as one of the funds posting the highest dividend yields available (currently 31.41%(!!) according to finance.google.com).
Last Friday they reported earnings, and took an 8% drop in stock price.  But AFTER posting their $0.45 dividend on 3/30.

I've back-timed this company over the past 4 years, and every quarter, they've had high dividends:
Between 4/10/2013 and today, the quarterly trailing 1-year yield has been between 15% and 35% with an average around 22%.
(see attached spreadsheet).

The Pros:   Dividends around 22%!
The Cons:  WMC focuses on trading RMBS & CMBS (Residential & Commercial Mortgage Backed Securities). 
For those with short memories, MBS's were the investing instruments at the heart of the 2009 housing market collapse.

Face punches, please.  Am I crazy for wanting to invest heavily on WMC for a year or so, with the goal of retiring a year earlier than planned?   (My current risky investment I already have $3K in OIL via UWTI - currently up 10% since purchase)
MFB

JZinCO

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Re: Investing for dividends - WMC
« Reply #1 on: May 10, 2016, 12:09:32 AM »
Have you considered that WMC total returns have been flat and real returns negative since IPO? That, with progressively weaker earnings would make me bearish.
« Last Edit: May 10, 2016, 12:16:06 AM by JZinCO »

Mother Fussbudget

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Re: Investing for dividends - WMC
« Reply #2 on: May 10, 2016, 06:54:28 AM »
Yes, they seem to be counting on another run up in US housing prices to have any hope at long term profitability. But (as bubble-ish as that sounds) I think that might be the trend.

protostache

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Re: Investing for dividends - WMC
« Reply #3 on: May 10, 2016, 07:05:36 AM »
Companies like this immediately go in my "too hard" pile. In particular, explaining why their payout ratio in 2015 was 431.5% is not something I feel like spending time on.

Aphalite

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Re: Investing for dividends - WMC
« Reply #4 on: May 10, 2016, 07:11:58 AM »
The company is in liquidation mode - selling off all of their assets for distribution - look at the 10-K, MBS decreased from 4.4b to 2.9b. In the first quarter, MBS decreased another $250m. (They also have debt of $2.8b, which about cancels out the remaining assets)

Total equity right now is $457m, which is just over market cap of $390m

In other words, if you are hoping for distribution to continue, it probably won't go for very long

EDIT: Also, you shouldn't be investing in UWTI - those 3x levered ETFs are intended for day trading, not long term holding. They reset on a daily basis. Read more here (first search result from Google but it will do): http://www.investopedia.com/articles/financial-advisors/082515/why-leveraged-etfs-are-not-longterm-bet.asp

EDIT2: Better article about levered ETFs: http://beginnersinvest.about.com/od/exchange-traded-funds-etfs/fl/Leveraged-ETFs-Are-Designed-to-Lose-Money-Over-the-Long-Term.htm
« Last Edit: May 10, 2016, 07:21:42 AM by Aphalite »

forummm

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Re: Investing for dividends - WMC
« Reply #5 on: May 10, 2016, 09:35:46 AM »
When dividends are this high, it's for a reason. You didn't just find some magical stock that everyone else had overlooked. They are distributing their capital (i.e. making the stock and business worth less). The stock is headed to zero because of those dividends. It's not magic.

Mother Fussbudget

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Re: Investing for dividends - WMC
« Reply #6 on: May 10, 2016, 10:39:05 AM »
That was my fear, forummm.  Their financials do look like they're selling off assets, and made me wonder how their book value has remained above $10/share.  Yes, this stock popped up in one of my stock screens.

Thanks all for the feedback - I'll avoid it.  >20% dividends...  I'm awake - I was dreaming ;-)

Mother Fussbudget

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Re: Investing for dividends - WMC
« Reply #7 on: May 10, 2016, 10:47:06 AM »
And I closed out the UWTI position this morning - up 18% - not a bad run.