Invesco Mortgage Capital (NYSE:IVR)

CAPS Rating: 5 out of 5


Player Avatar TSIF (99.96) Submitted: 11/18/2011 11:31:16 AM : Outperform Start Price: $9.49 IVR Score: +1.98

When you go to the well and there's not enough water for you and your horse then you should probably avoid that well n the future. Hoping someone hydrofracked it between visits or put a longer rope on the bucket since your last visit can leave you dry. I'm back after Invesco Mortgage Captital anyway after booking my negative points from steep three month selloff after investors determined that the risk reward in the hybrid REIT's was a bit more than they wanted to chase, even with a 20% dividend. Buyers are coming back and if I'd been paying attention I would have closed my loser when it hit $13 and then made this play. It's hard to close a pick here on CAPS when it's in the red. Ego, admitting you were wrong, and the all important accuracy hit in the game itself tends to guide you into holding.

A successful play on dividends on CAPS however, requires a little more luck and anaylsis than one might think. The "dividend play" has to hold it's share price better in a down market than other equities, it has to have some appreciation, though not S&P market beating in an up market, and the dividend reinvestment has to make up the difference to work you into the green over 3-4 quarters of patient dividend reinvestment. Invesco has a chance of being one of those, but fear is not gone on hybrid REIT's. They could be dominos waiting for a catalyst to fall hard. The spread of interst rates could change, borrowers could default, the governement could stop backing the FHA portions, etc.

I think Invesco has a chance of being a long term winner on CAPS, but it isn't the best play if you're looking for an REIT for Real Life stable dividends. I broke in at $15 but we could go lower again. I'm looking to book the December dividend and see how the S&P and the REIT fears are progressing. If I can get a few quarters of dividend reinvestment in....if Invesco can hold their dividend near this level....if the sky doesn't fall...if...if...if....then I'll be able to hold this one for a long term caps play....pretty iffy and that rope could still be too short to get any water out of the well......

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Member Avatar Kvedarna (99.54) Submitted: 8/1/2013 1:14:14 PM
Recs: 0

There are 18 plus billion of assets and 2.5 plus billion of equity as of Dec 31. It is an enormous margin account, albeit one they try to hedge. The thing about hedges is that in not a few instances they don't work. That is, it is possible to lose money on the long position and lose money on the short side as well. I am not saying they are imperfectly hedged. I am saying that the size of the long position is so large that the cost of the hedge will grow and grow if things get ugly. I am also saying that with a ten percent decline in mortgage bond prices, there goes 1.8 billion of the 2.5 billion equity, which would in and of itself trigger margin calls on the long positions which would be unmeetable. Furthermore, it is not impossible that the financing banks carrying the leverage as assets on their books begin to tighten credit, causing further weakness and more asset declines. This business plan has been a good ride during the years when short rates were essentially zero. It is a problem waiting to happen when long bond prices fall and funding costs rise. Even if the long is variable coupon, it will reach panic levels. This may be a bankruptcy one day.

Member Avatar TSIF (99.96) Submitted: 3/18/2014 7:18:28 PM
Recs: 0

Good concerns, leverage is risky. But I don't see BK. In the short run, 11% dividend can lower the cost basis. Interest rates from buybacks are a concern, but the quality of the loans is greatly improved.

I agree that I don't like dividend plays that borrow or issue shares in exchange for payouts.

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