REITs: Paving the 2011 SUPER High-Income Highway AGNC, NLY

It’s been just over a week since the ball has dropped in Times Square, and New Year's Eve hangovers are ancient history. So are the performance figures for your portfolio over the previous 12 months.

How well you did likely had a direct correlation as to whether you were popping Dom Perignon corks on New Years, or opening cans of Welch’s Grape Juice. But now it’s 2011, and it’s a whole new ball game.

If you’re among the group of baby-boomers hitting 65 this year, there’s an excellent chance you’ve already focused your investment portfolio with a heavy bias towards one investing theme: income.
Of course traditional choices like bank CDs, “high yield” savings accounts, and U.S. Treasuries aren’t really choices at all.

Income from them won’t even feed your pets, let alone pay the rest of your bills and allow for a comfortable retirement. So what will you do? What’s the “big income idea” for 2011?

Monster Dividends

I’ve got one for you: Real Estate Investment Trusts, more commonly referred to as REITs. They have some of the highest yields on Wall Street.

Last year, REITs were one of the best performing areas in the financial sector, and are quickly becoming the “darlings” of investors in the know.

Most investors are drawn to REITs for their high-income producing ability, but some REITs have the ability to generate hefty capital appreciation as well.

The Vanguard REIT ETF (NYSE:VNQ) – which holds nearly 100 different REITs --closed out 2010 with a respectable 24% gain. That’s in stark contrast to the Financial Sector for the S&P 500, which pretty much flat-lined for 2010.

For 2011, I expect REITs to perform in a similar fashion as last year. But not all REITs are created equal, and not all will be stellar performers in 2011. We’ll get to two that will in a moment, but first let’s dig a little deeper into REITs.

What Makes REITs Such Great Investments?

Most of the success of REITs can be traced to one thing: cheap money. You see, when interest rates are low – as they were for all of last year – REITs can make a killing. Some are paying shareholders over 19% interest to shareholders. No, that’s not a typo.
That kind of performance can continue as long as interest rates stay low. The consensus among Wall Streeters is that they will. Here’s a few key reasons:

• Unemployment continues to hover just below 10%, and will likely remain there for the foreseeable future.

• Inflation is nowhere to be seen.

• “Quantitative Easing 2” (QE2) is imminent, and there’s already talk of a “QE3”.

So how do REITs offer the kind of killer returns we’re talking about?

Their business model is quite simple: they borrow money using low-interest, short-term vehicles. Then they use those funds to purchase high-interest, long-term securities. Investors pocket the difference, known as the “spread”, which can be substantial.

As long as interest rates remain low, they can continually refinance their short-term borrowings. This leads to solid profits, and that translates into big dividends for stockholders.

REITs are required by law to distribute 90% of its taxable income to its shareholders. This keeps dividend payments stable, further increasing their attractiveness to income-oriented investors.

Two REITs I Like for 2011

The first is Annaly Capital Mangement, Inc. (NYSE:NLY). Annaly owns, manages, and finances real estate investments.
Its portfolio includes mortgage pass-through certificates, collateralized mortgage obligations (CMOs), agency callable debentures, and various other securities. Most of these are purchased from Fed-backed Fannie Mae (NYSE:FNMA.OB) and Freddie Mac.

With a market cap of just over $11 billion, Annaly currently sports a 14.46% yield. Institutions own about 55% of the company’s stock, and it trades at a very reasonable P/E of 13.1
It’s hard for investors not to be giddy over the combination of high yield combined with the potential of capital appreciation, and virtually no default risk.

In stark contrast to commercial real estate lender iStar Financial Inc. (NYSE:SFI) – which continues to struggle -- Annaly is doing extremely well, and has strung together several quarters of strong results. This should keep those high dividends flowing to shareholders throughout 2011.

The second REIT I like is American Capital Agency Corporation (Nasdaq:AGNC). Similar in structure to Annaly, American Capital’s earnings come from investing in residential pass-through securities and CMOs.

Also similar to Annaly, these securities are also guaranteed by Fanny and Freddie. Some are also guaranteed by the Government National Mortgage Association (Ginnie Mae).

American Capital sports a whopping 19.21% yield. This is compelling value for income-oriented investors, to say the least.

In summary, it’s the “implied yield” for the property assets underlying REITs that’s the real secret to a REITs success. You see, in the form of REIT shares, that property effectively trades for significantly below the replacement cost.

You should steer clear of REITs that don’t invest in government backed securities. They carry significantly higher implied risk, with little difference, if any, in yield.

As long as interest rates and inflation remain close to zero, REITs will continue to generate significant earnings… and monster dividends for shareholders who decide to invest in them.

Annaly Capital Management and American Capital are two great examples of REITs who will have you popping champagne corks a year from now.

Disclosure I am long AGNC, VNQ, and NLY shares with no plans to sell anytime soon

Seadrill SDRL buys two rigs for total $1.2 bln, shares up

Wow most excellent news after I bought SDRL last month.

* Says investment fully financed
* Deal could strengthen dividend policy
* CEO says sees market improving in 2011


    Norway's Seadrill Ltd (SDRL) is to acquire two ultra-deepwater semi-submersible drilling rigs, expecting to reap benefits from an improving drilling market this year and sending its shares higher.
Seadrill, one of the world's largest deep-water drillers, said on Monday the total project price for the two rigs is estimated to be about $1.2 billion and said it had secured new bank debt to finance the investment.

Shares in Seadrill rose 1.6 percent to 200.3 crowns by GMT 0910, outperforming a 0.8 percent rise in the Oslo stock exchange benchmark index .OSEBX. The stock has risen sharply in recent months and hit a record 208.70 crowns last month.

Seadrill Chairman John Fredriksen said in a statement the cash break-even cost per day for each rig was expected to be around $385,000.

"The board anticipates that the purchase of the two rigs including the agreed financing will strengthen Seadrill's dividend capacity going forward," Fredriksen said.
Seadrill currently has 52 drill rigs in its fleet, including 14 for use in ultra-deep water, according to its website.
The two new rigs, which are under construction at the Jurong Shipyard in Singapore, are expected to be delivered in the first quarter and fourth quarter of 2011, respectively.

The first rig to be completed has a five year contract in place, subject to further discussions among the involved parties, Seadrill said. The second unit has no employment in place.

Atle Hauge, analyst at brokerage Carnegie, said Seadrill's purchase of the two rigs showed it was more willing to take on risk than other rig companies. "Seadrill is in the category which is seen as high quality, with good experience in deepwater," he said. "Considering these are probably pretty high-end rigs, I believe this risk is acceptable."

Seadrill Chief Executive Alf C Thorkildsen told Reuters Seadrill expects the market to be strong enough to exceed the break-even level for the rigs.

"We show that a break-even level of costs, including interest expenses, is at $385,000 and we think that the market is better than that," Thorkildsen said. 

"We believe that the market will be better in 2011. I think it will rise from 2010 in 2011," he said, adding that the market for all three of Seadrill's segments looked set to improve.

Oil services firms have been cautious in predicting market conditions in 2011. Haugen said 2011 has been seen as a big test for deepwater drilling as new rigs come into service.

"I believe rates will stay flat in today's market -- I don't believe they will go down," Haugen said. "That is because we see activity increasing and see a solid rise both in 2011 and 2012."

Disclosure I am long SDRL shares, and I no longer own DO shares.

Sun Communities (SUI) Declares $0.63 Quarterly Dividend; 7.6% Yield

Sun Communities, Inc. (NYSE:SUI),  a real estate investment trust ("REIT") that owns and operates manufactured housing and recreational vehicle communities,  today announced its Board of Directors declared a quarterly dividend of $0.63 per share for the fourth quarter of 2010. The dividend is payable January 21, 2011 to shareholders of record January 12, 2011.  Sun Communities has 19.9 million shares outstanding.

Sun Communities, Inc. is a REIT that currently owns and operates a portfolio of 136 communities comprising approximately 47,600 developed sites.

Disclosure I am not long but I have been watching this stock waiting on a great chance to get in. 

Gas Natural Inc.(EGAS) Announces Monthly Dividend of $0.045 Per Share

Gas Natural Inc. (NYSE Amex: EGAS) , a natural gas utility company serving approximately 62,000 customers in six states, has announced that its Board of Directors declared a monthly dividend of $0.045 per share to shareholders of record as of December 15, 2010. The dividend will be payable on December 31, 2010.

Gas Natural Inc. engages in the distribution and sale of natural gas to residential, commercial, and industrial customers in Montana, Wyoming, North Carolina, and Maine. The company distributes approximately 29 billion cubic feet of natural gas to approximately 62,000 customers through regulated utilities operating in and around Great Falls and West Yellowstone, Montana; Cody, Wyoming; Bangor, Maine; Elkin, North Carolina; and various cities in Ohio and western Pennsylvania. It also markets approximately 2.4 billion cubic feet of natural gas to commercial and industrial customers in Montana and Wyoming, and manages midstream supply and production assets for transportation customers and utilities. In addition, the company owns a 48% working interest in 160 natural gas producing wells and gas gathering assets. Further, it owns the Shoshone interstate and the Glacier gathering natural gas pipelines located in Montana and Wyoming. The company was formerly known as Energy, Inc. and changed its name to Gas Natural Inc. on July 9, 2010. Gas Natural Inc. was founded in 1909 and is headquartered in Great Falls, Montana.

Disclosure I am long EGAS shares. 

Chevron to Drill Deeper to Expand Brazil Project

Chevron Corp.(CVX), the second-largest U.S. oil company, plans to expand its $3 billion Frade project off Brazil’s coast as it bets on finding more crude by drilling deeper wells.

Chevron may start work to tap deep-water reservoirs beneath a layer of salt in late 2011 or early 2012, said Ali Moshiri, head of exploration and production for Africa and Latin America. The San Ramon, California-based company, which currently produces oil from shallower deposits above the salt layer at the Frade field in the Campos Basin, may add a second output platform if it strikes large reserves lower down, he said.

“Frade has been a good surprise so far regarding production,” Moshiri said yesterday in a telephone interview from Houston. “Our desire is for it to be large enough for a stand-alone development.”
Chevron is seeking to replicate the success of Petroleo Brasileiro SA, Brazil’s state-controlled oil producer, which has found oil deposits buried beneath existing offshore fields. Two of Brazil’s 10 most productive wells were discovered in Petrobras’s Jubarte field, also in the Campos Basin, after the company drilled beneath the salt layer.

Output at Frade will reach 90,000 barrels a day this year, up from 80,000 barrels now, Moshiri said. Chevron operates Frade with a 51.74 percent stake. Petrobras and a joint venture of Inpex Corp., Sojitz Corp. and Japan Oil, Gas and Metals National Corp. also hold stakes.

Chevron also owns a 20 percent stake in the Olivia and Atlanta oil fields, where partner Royal Dutch Shell Plc is seeking to sell its 40 percent operating stake. Chevron would "consider" selling its stake in the fields in the Santos Basin, which aren’t yet producing, should it get an offer, Moshiri said.
“We always consider any type of transaction and if an offer comes our way, we’ll be glad to consider it, but at the moment our focus is on Frade and Papa Terra,” he said. “If we find something bigger and farm out the smaller one, that’s a process we do.”

Chevron is a minority partner with Petrobras at the $5.2 billion Papa Terra project in Campos, where production is set to start in 2013 and eventually reach 140,000 barrels a day.


Chevron may participate in two exploration bidding rounds that Brazil is planning for this year, Moshiri said. Brazil plans to auction onshore and offshore areas in the north of the country in the first half and deep-water blocks later in the year, Energy Minister Edison Lobao said Jan. 7.
“If opportunities are there we will participate,” Moshiri said. “Brazil is a core country for us.”
Companies including BP Plc, Sinochem Group and A.P. Moeller-Maersk A/S bought stakes in Brazilian oil projects last year as a delay in bidding rounds increased demand for exploration acreage.
Brazil tightened the state’s grip on the domestic oil industry after the discovery of the Lula field, formerly known as Tupi, and Libra, which hold 6.5 billion barrels of oil and as much as 15 billion barrels, respectively.

In December, Brazil’s Congress approved legislation to make Petrobras the operator of all new projects in the pre-salt and other areas deemed “strategic.” The companies that offer the biggest share of oil output to the government will win the contracts under the so-called production sharing model.

Last update: 5:23 AM ET, Jan 14

Disclosure I am long CVX shares.

Nebraska OKs Qwest-CenturyLink merger

Nebraska regulators on Tuesday approved the merger of telecoms Qwest Communications International Inc. and CenturyLink.

The companies pledged to spend at least $10 million upgrading broadband infrastructure in Nebraska as part of getting approval there. The combined company will own more than 200,000 access lines in Nebraska. Denver-based Qwest (NYSE: Q) and Monroe, La.-based CenturyLink (NASDAQ: CTL) announced the merger in April. It’s worth an estimated $22 billion, $10.6 billion in stock and the remainder from CenturyLink’s assumption of Qwest debt.
As of Tuesday, 16 states including Colorado, the U.S. Federal Trade Commission and Department of Justice, and the District of Columbia have approved the merger. The Federal Communications Commission also must sign off on the deal.

The merger is expected to close in the first half of this year.

CenturyLink will own a 50.5 percent, controlling stake in the combined company. It will be headquartered in Monroe. Denver will become a CenturyLink regional headquarters city and home of the company’s division serving large companies and government agencies.

Last month, the Colorado Public Utilities Commission approved the merger. It added a condition that the merged company should keep making charitable contributions in Colorado at a level similar to Qwest’s corporate and foundation giving of the past three years.

Disclosure I am long CTL shares.

Cherokee CHKE launches its brand in China through Chinese retailer RT Mart Stores

Cherokee Inc. (CHKE) said Thursday it is branching into China with the launch of its apparel brand at Chinese retailer RT Mart Stores.

Cherokee, based in Van Nuys, Calif., licenses its namesake clothing brand as well as products under the names Laila Ali, Carole Little and others. Its brands are sold in multiple countries at retailers such as Target and T.J. Maxx in the U.S. and Tesco in the U.K.

RT Mart is a unit of Ruentex Industries Ltd., a textile, retail and trading company. It operates more than 134 stores.

Shares fell 25 cents to $19.63 in morning trading.

Disclosure I am long CHKE shares.

About Cherokee

Cherokee Inc., together with its subsidiary, SPELL C. LLC, markets and licenses brand names and trademarks for apparel, footwear, and accessories primarily in the United States, Canada, Mexico, the United Kingdom, Europe, and South Africa. It owns various trademarks, including Cherokee, Sideout, Sideout Sport, Carole Little, CLII, Saint Tropez-West, Chorus Line, All That Jazz, and Molly Malloy. The company also assists other brand-owners, companies, wholesalers, and retailers in identifying licensees or licensors for their brands or stores. As of January 30, 2010, it had 25 licensing agreements. The company has a strategic relationship with Target Corporation (Target) that grants Target the exclusive right in the United States to use the Cherokee trademarks in certain categories of merchandise. Cherokee Inc. was founded in 1988 and is based in Van Nuys, California.

Caterpillar Unit to Buy Land From Hemaraj for Thailand Plant

An Australian subsidiary of Caterpillar Inc(CAT). signed a contract to buy 140 rais of land at an industrial estate in Thailand owned by Hemaraj Land & Development Pcl, the Thai company said today in a statement.

About Caterpillar

Caterpillar Inc. manufactures and sells construction and mining equipment, diesel and natural gas engines, and industrial gas turbines worldwide. Its Machinery business engages in the design, manufacture, marketing, and sale of construction, mining, and forestry machinery, such as track and wheel tractors, track and wheel loaders, pipelayers, motor graders, wheel tractor-scrapers, track and wheel excavators, backhoe loaders, log skidders, log loaders, off-highway trucks, articulated trucks, paving products, skid steer loaders, underground mining equipment, tunnel boring equipment, and related parts. This business also involves in the design, manufacture, remanufacture, maintenance, and service of rail-related products, as well as offers logistics services. The company's Engines business designs, manufactures, markets, and sells engines for electric power generation systems, locomotives, marine, petroleum, construction, industrial, agricultural, and other applications; and related parts. This business also provides remanufacturing services for other companies. Its Financial Products business provides various financing alternatives to customers and dealers for the company's machinery and engines, solar gas turbines, and other equipment and marine vessels, as well as offers loans to customers and dealers. This business also provides various forms of insurance to customers and dealers to support the purchase and lease of its equipment. Caterpillar markets its products through distribution centers. The company was formerly known as Caterpillar Tractor Co. and changed its name to Caterpillar Inc. in 1986. Caterpillar was founded in 1925 and is headquartered in Peoria, Illinois.

Disclosure I am Long CAT shares. 

3 Shipping Stocks That Are Cruising

Shipping rates for supertankers are on the rise, largely due to increased fuel demand from China. That increase is causing analysts to predict a rise in the daily shipping rate to $100,000 by December of this year. It's good for the shippers - and maybe for China, too - but it might be a tad inflationary for the average consumer at the gas pump going forward.

For investors, it clearly means opportunity. The shipping business is on the mend, and below we list three stocks whose fortunes are proving that fact. Note, too, that it's more than just price appreciation that makes these companies attractive. They also boast some spectacular fundamentals.


Knightsbridge Tankers Limited (Nasdaq:VLCCF) has a market cap of over $320 million and trades with an annual dividend yield of 8.5%. Better than this, however, is the stock's performance; year-to-date, Knightsbridge shares have climbed more than 40%. That beats the iShares Dow Jones Transportation Average ETF (NYSE:IYT) by a long shot. The transports are up less than 5% since the year began, and the broad market, as measured by the SPDR S&P 500 ETF (NYSE:SPY), is down nearly 2%.
Knightsbridge operates a fleet of dry bulk and crude oil carriers and is headquartered in Bermuda. The stock's P/E ratio is 12.2 and price-to-book is just 1.27. L4
In June, VLCCF added another capesize vessel, the Golden Future, to its fleet at a cost of $72 million.

Strong Five-Year Growth Trend

Seaspan Corporation's (NYSE:SSW) sales figures have grown at a rate of 51% for the last five years and EPS growth comes in at 56% for that period. Yet the stock still offers an ample 4.8% dividend yield and trades with a P/E of 18.5. Moreover, the shares are on offer at just a fraction of the company's breakup value. Price-to-book is a meager 0.69.
Seaspan owns and operates a fleet of 42 containerships and has contracts to purchase another 21 and lease five more. The company is domiciled in Hong Kong. Year-to-date the shares are up 14.5% and for the full year an impressive 70%.

Comparatively, Teekay Corporation (NYSE:TK) stock has risen by over 13% since the year began and by 47% for the full year. The stock pays a 4.9% dividend and trades with a P/E of 15.1.

The Final Straw

Hop on the next ocean going transport to wealth and riches. The above three issues offer great recent momentum and a nice yield kicker, to boot. (Despite some disappointing trucking trends, there is still a lot of opportunity in the industry.)

Disclosure I am long VLCCF, and SPY shares. 

4 Small REITs Delivering FAT Dividends

Real Estate Investment Trusts as a whole have performed very well over the last two years with the Dow Jones Equity All REIT Index up 28.47% in 2009 and 22.15% through November 30 of this year. REITs are no longer a deep value investment, but still may be enough of a value to add income to your portfolio.

Below is a high level overview of four small capitalization REITs that get very little coverage and are currently rewarding shareholders with large payouts.

First Real Estate Investment Trust of New Jersey (FREVS.OB) may be one of the most off the radar quality REITs that exists. Likely a result of its small size and that it does not trade on a major exchange. Based in Hackensack, New Jersey, the trust owns a mix of primarily retail commercial properties and residential apartments in New Jersey, New York, and Maryland. The trust was formed in 1961 and still holds several properties purchased in the sixties and seventies which are on the books for well under the current market value.

Funds From Operations were down year over year for the period ended July 31, 2010. The trust should be releasing its year ended October 31, 2010 annual report in the next 30-40 days which should give some direction as to how the recovery is progressing in the trust’s areas of operations.
The stock price has recovered and is trading in the middle of its 52 week range and at less than half of the highs the stock hit in 2005. While I do not expect it to get back to 2005 levels anytime in the near future, it has a strong yield at 6.7% and should have some upside price potential as the economy and real estate improve.

Whitestone REIT (WSR) is a relatively new player to the public markets making its debut on August 26, 2010. The trust targets what it has titled Community Center Properties™ which it defines as visibly located properties in established or developing culturally diverse neighborhoods. The trust primarily owns retail and other commercial properties located in Houston, Dallas, San Antonio, Phoenix and Chicago.

The trust has been busy since its IPO acquiring The Citadel, a Class A property in Scottsdale, Arizona with 28,547 square feet in September and Sunnyslope Village, a Class B property in Phoenix, Arizona with 111,227 square feet. Management believes it has acquired both of these properties significantly below their respective replacement costs.

The trust has $27 million in cash and 14 unencumbered properties on its balance sheet which should give the it the flexibility it needs to acquire and upgrade existing properties. The trust appears to be making timely investments that should add to the bottom line as the economy improves. Whitestone is currently trading at the high end of its 52 week range and is yielding 8.17%.

Monmouth Real Estate Investment Corp. (MNR) owns nearly 7,000,000 square feet of industrial space located in 25 states and has been in operation since 1968. The trust prides itself on the quality of its tenant’s such as Coca Cola (KO), Anheuser-Busch (BUD), Caterpillar (CAT), Mead Paper (MWV), Sherwin Williams (SHW) and Federal Express (FDX). Of these high quality tenants, 49% of its rentable square feet was leased to Federal Express and subsidiaries. This certainly adds concentration risk to the trust’s portfolio.

The trust has been actively acquiring additional properties over the last year purchasing 4 properties totaling 838,000 square feet in fiscal year ended September 30, 2010 for $53,140,000 and 2 more properties totaling 448,000 square feet for approximately $20,350,000 so far in fiscal 2011. The trust plans to pursue additional acquisitions throughout fiscal 2011.

The trust also owns a $42.5 million investment portfolio of primarily common and preferred REIT stocks including a small position Mission West Properties (MSW). The three largest holdings which make up 28% of the total value are UMH Properties, Inc. (UMH), Sun Communities, Inc. (SUI), and Getty Realty Corporation (GTY).

The trust is currently trading at the high-end of its 52 week range and yields 7%.

Mission West Properties Inc. (MSW) is a very focused REIT in that it owns and operates 112 properties totaling approximately 8.1 million square feet in the Silicon Valley area of San Francisco. Most of portfolio properties are commercial R&D properties that are typically leased to technology firms. Among the trust’s more noteworthy tenants are Microsoft (MSFT), Apple (AAPL), NEC (NIPNF.PK), NVIDIA (NVDA), and Stryker Corporation (SYK).

The company has not been an aggressive acquirer of property in recent years. To date, they have only acquired one property during 2010. Funds From Operations were a little soft in the most recent quarter ended September 30, 2010 which may put the current dividend in jeopardy. In order for the trust to grow and protect its dividend it is important to see an improving business environment in the Silicon Valley. The trust still has major vacancies within its portfolio and has leases of nearly 740,000 rentable square feet rolling over in 2011 and another million in 2012.

This investment carries a higher degree of risk given the size of the trust, but it is currently paying you an 8.66% yield for the risk. Patient investors could be rewarded, but must be prepared for the dividend to be cut. The trust did receive a buyout offer of $13.55 per share in cash in July of 2007. Of course we know what has happened to real estate since that time and would not expect a similar offer in today’s environment.

Disclosure: I am long WSR shares. I receive no compensation to write about any specific stock, sector or theme.

Arlington Asset Investment Corp. Declares $0.60 per Share Dividend for the Fourth Quarter of 2010

Arlington Asset Investment Corp. (NYSE:AI - News) today announced that its Board of Directors declared a quarterly dividend of $0.60 per share for the fourth quarter of 2010.  The dividend will be payable on January 31, 2011 to shareholders of record on December 31, 2010.  During the fourth quarter of 2010, the Company repurchased 20,969 shares of its Class A common stock at an average price of $23.96 per share.  The Company now has remaining authorization to repurchase up to 256,185 shares of its Class A common stock under its current repurchase program.

About the Company

Arlington Asset Investment Corp. (NYSE:AI) is a principal investment firm that invests primarily in mortgage-related assets. The Company is headquartered in the Washington, D.C. metropolitan area. For more information, please visit www.arlingtonasset.com. Statements concerning future performance, returns, plans and steps to position the Company to realize value, and any other guidance on present or future periods, constitute forward-looking statements that are subject to a number of factors, risks and uncertainties that might cause actual results to differ materially from stated expectations or current circumstances.

These factors include, but are not limited to, changes in interest rates, increased costs and reduced availability of borrowing, decreased interest spreads, changes in default rates, preservation of our net operating loss and net capital loss carry-forwards, impacts of regulatory changes and changes to Fannie Mae and Freddie Mac, availability of opportunities that meet or exceed our risk adjusted return expectations, ability and willingness to make future dividends, ability to generate sufficient cash through retained earnings to satisfy capital needs, ability to grow book value, changes in mortgage pre-payment speeds, risks associated with merchant banking investments, the realization of gains and losses on principal investments, continuation or cessation of share repurchases, changes in tax rates and laws, available technologies, competition for business and personnel, and general economic, political, regulatory and market conditions.

These and other risks are described in the Company's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q that are available from the Company and from the SEC and you should read and understand these risks when evaluating any forward-looking statement.

Disclosure I am long AI shares for at least a year.

AGNC's Biz Model to Rock 4Q?

American Capital Agency Corp. (NasdaqGS: AGNC), a leading real estate investment trust (REIT) that focuses on investments in mortgage pass-through securities and collateralized mortgage obligations (CMOs), has recently announced the preliminary results for fourth quarter 2010. The company anticipates quarterly earnings (including non-recurring items) to exceed $2.25 per share.
American Capital’s fourth quarter results were positively affected by non-recurring net realized and unrealized gains on its derivative instruments, and net realized gains on available-for-sale securities. The derivative instruments, such as to-be-announced (TBA) mortgage short positions and payer swaptions, are primarily utilized by the company to hedge increases in interest rates.

A payer swaption is a tool to enter into an interest rate swap where the buyer pays fixed rate and receives floating, thereby benefiting from interest rate rises. The initial cost of the swaption comes in the form of a premium, and this is the maximum amount the buyer can lose. The participants in the swaption market are primarily large corporations, banks, financial institutions and hedge funds, who typically utilize swaptions to manage interest rate risk arising from their financing arrangements.

Agency lenders such as American Capital, which holds a mortgage portfolio, purchases payer swaptions to protect against lower interest rates that might lead to early prepayment of the mortgages. This measure  ultimately facilitates the company to continue making money by collecting premium.
American Capital expects taxable net income for the quarter to be lower than GAAP net income due to the deferred recognition of certain unrealized gains/losses for tax purposes and other timing-related differences. The company anticipates undistributed taxable income at year-end 2010 to surpass $40 million, with book value per share exceeding $24.00.  American Capital estimates the fair value of its investment portfolio to be approximately $13.5 billion as of December 31, 2010 with a leverage ratio of approximately 7.8x.

In a separate development, American Capital announced a secondary offering of 18 million common shares. The company will also grant the underwriters an option to purchase an additional 2.7 million shares to cover any over-allotments. American Capital intends to utilize the proceeds to purchase additional agency securities and for general corporate purposes.

American Capital invests only in fixed-rate agency securities where payments are guaranteed by the U.S. government or government-owned entities, such as Fannie Mae (OTC BB: FNMA.OB - News), Freddie Mac (OTC BB: FMCC.OB - News) and Ginnie Mae. Specifically, American Capital invests in FMCC Gold certificates, FNMA certificates, and Ginnie Mae certificates. We like the company’s focused investment approach, which is not distracted by originations, servicing, or credit risk from investments in mortgages that do not have the backing of the U.S. government.

American Capital is externally managed by American Capital Agency Management, a wholly-owned subsidiary of American Capital Ltd (NasdaqGS: ACAS), an $18 billion publicly traded asset management company. Agency residential lenders like American Capital are the only residential mortgage REITs left with a viable business model, more specifically, with access to capital-tofund growth during recession. With the government takeover of Freddie and Fannie, American Capital's securities now have an explicit government guarantee, which makes agency REITs a much more attractive prospect for investors. Additionally, the company’s portfolio of government-backed assets is relatively liquid and credit risk is limited.

However, the residential mortgage market in the U.S. has experienced defaults, credit losses and liquidity concerns, which have reduced financial industry capital, leading to reduced liquidity for some institutions. These factors have impacted investor's perception of the risk associated with real estate related assets, including agency securities and other high-quality RMBS (residential mortgage-backed securities) assets.

As a result, values for RMBS assets, including some agency securities and other AAA-rated RMBS assets, have experienced a certain amount of volatility. Increased volatility and deterioration in the broader residential mortgage and RMBS markets may adversely affect the performance of American Capital in the future.

Disclosure I am long AGNC shares Collecting FAT dividends now.

American Capital prices share offer at $28 each

American Capital Agency Corp. said it had priced its public offering of 23.4 million shares at $28 per share, and expects it to generate net proceeds of approximately $625 million after expenses.
The offered price announced late Thursday was 2.2 percent below its closing price that day of $28.64. Its shares slipped 7 cents to $28.57 in morning trading Friday.

The Bethesda, Md.-based real estate investment trust expects to use the proceeds to acquire additional shares and for general corporate purposes.

In connection with the offering, the company also said it has given underwriters a 30-day option to purchase up to 3.5 million addition shares to cover any over-allotments.

The offering is expected to close on Jan. 20.

Disclosure I am Long AGNC Shares.