Monthly Dividend Stock In Focus: Dynex Capital

Up to date on April 1st, 2025 by Felix Martinez

Dynex Capital (DX) is a mortgage Actual Property Funding Belief (mREIT) that provides an interesting 15.7% yield, making it a doubtlessly enticing excessive yield inventory.

Dynex Capital additionally pays its dividends month-to-month, which is uncommon in a world the place the overwhelming majority of corporations pay them quarterly.

There are at present over 76 corporations with month-to-month dividend funds.

You may see the total record of month-to-month dividend shares (together with related monetary metrics similar to dividend yields, payout ratios, and extra) by clicking on the hyperlink beneath:

Dynex Capital’s excessive dividend yield and month-to-month dividend funds make it an intriguing inventory for traders, regardless that its dividend fee has declined lately.

Nonetheless, as with many high-dividend shares, the sustainability of the dividend is a vital consideration. This text will analyze Dynex Capital’s funding prospects.

Enterprise Overview

Dynex Capital is a mortgage Actual Property Funding Belief (REIT). As a mortgage REIT, Dynex Capital invests in mortgage-backed securities (MBS) on a leveraged foundation in america. It invests in company and non-agency MBS, together with residential MBS, industrial MBS (CMBS), and CMBS interest-only securities.

Company MBS have a warranty of principal fee by a U.S. authorities company or a U.S. government-sponsored entity, similar to Fannie Mae and Freddie Mac. Non-Company MBS has no such fee assure. Dynex Capital, Inc., was based in 1987 and is headquartered in Glen Allen, Virginia.

The corporate is structured to have inside administration, which is mostly constructive as a result of it will possibly scale back conflicts of curiosity. Moreover, once they enhance whole fairness, working bills don’t have any materials affect. Over time, Dynex’s administration crew has constructed a powerful observe document of producing enticing whole returns for shareholders:

Supply: Investor presentation

Dynex’s portfolio is structured to be broadly diversified throughout residential and industrial company securities. This diversified method creates a gorgeous risk-to-reward steadiness that has benefited the corporate for a few years. Over time, the combination of CMBS and RMBS investments has lowered the unfavourable impacts of prepayments on portfolio returns. Moreover, company CMBS acts as a cushion within the occasion of surprising volatility in rates of interest.

Lastly, the high-quality CMBS IO are chosen for shorter length and better yield, with the supposed affect of limiting portfolio volatility. A good portion of Dynex’s Company 30-year RMBS fixed-rate portfolio has prepayment safety by way of limits on incentives to refinance.

Administration anticipates opportunistically growing leverage within the high-quality asset portfolio whereas avoiding credit-sensitive property which are leveraged with short-term financing. Consequently, the corporate enjoys a extremely versatile portfolio that frees administration to pivot quickly to different enticing alternatives as markets stay unstable.

The corporate reported a complete financial return of $0.13 per widespread share (1.0% of starting e book worth) for This fall 2024 and $0.99 per share (7.4% of starting e book worth) for the total yr. E book worth per share stood at $12.70 as of December 31, 2024. Web earnings was $0.61 per share for This fall and $1.50 for the yr, whereas complete earnings reached $0.15 per share for This fall and $1.30 for the yr. The corporate declared dividends of $0.43 per share in This fall and $1.60 for 2024. Dynex raised $64.4 million in fairness capital in This fall, bringing its whole for the yr to $332.0 million.

The corporate reported a 36% enhance in interest-earning property and liquidity of $658.3 million at year-end. Leverage, together with TBA securities, stood at 7.9 instances shareholders’ fairness. Dynex delivered a complete shareholder return of 13.7% in 2024 and 27.4% over two years, benefiting from capital deployment amid market volatility. Management cited favorable circumstances, together with a steeper yield curve, decrease financing prices, and extensive mortgage spreads.

T.J. Connelly was promoted to Chief Funding Officer after serving as Senior Technique and Analysis Vice President. With over 25 years of expertise in mortgage-backed securities buying and selling and financial analysis, he’ll oversee funding, financing, and hedging methods. He studies to Co-CEO and President Smriti Popenoe, who highlighted his position in driving Dynex’s sturdy efficiency.

Progress Prospects

With rates of interest rising quickly and the mortgage market affected by plummeting demand, Dynex might have a difficult time rising. On prime of that, a recession is taken into account more and more seemingly, which might result in a bounce in defaults on Dynex’s investments, posing an extra headwind to progress. Consequently, when mixed with Dynex’s sky-high payout ratio, we anticipate earnings to say no within the coming years, resulting in a probable dividend reduce.

Supply: Investor Presentation

Lastly, Dynex presents a number of aggressive benefits that ought to allow it to generate sturdy returns for traders all through enterprise cycles primarily based on these long-term tailwinds.

Aggressive Benefit & Recession Efficiency

Dynex possesses some aggressive benefits, which can bolster investor returns all through enterprise cycles. These benefits embrace the achieved administration crew with expertise in managing securitized actual property property by a number of financial cycles. Moreover, the belief’s deal with sustaining a diversified pool of extremely liquid mortgage investments with the smallest quantity of credit score danger might be one other benefit.

The belief’s normalized diluted earnings per share had been fairly secure by the final recession, although shares nonetheless offered off very closely, dropping about 40% of their market worth. Total, there’s little margin of security right here due largely to the payout ratio being so excessive, mixed with extremely unstable earnings-per-share.

One other danger is that prepayment speeds might rise attributable to seasonal components. Moreover, the drop in mortgage charges might enhance refinancing exercise, additional reducing into income.

Whereas some cash-out refinancing is already factored into the corporate’s prepayment expectations, and their portfolio has been structured to hedge in opposition to a few of this, there’ll seemingly be some misplaced income. This explains the corporate’s current sample of dividend reductions since 2019.

Dividend Evaluation

The dividend was not totally lined by earnings in fiscal 2024, with unfavourable earnings of -$0.35 in earnings per share in comparison with a $1.60 per share dividend payout. In 2025, we anticipate this sample to repeat itself, with solely $1.58 in earnings per share anticipated to be generated this yr. Consequently, we anticipate the dividend to be reduce in some unspecified time in the future over the subsequent half-decade.

Closing Ideas

Dynex Capital’s excessive dividend yield and month-to-month dividend funds make it enticing to high-yield dividend traders. Nonetheless, we stay extraordinarily cautious in regards to the inventory.

The corporate doesn’t cowl its dividend with earnings per share. Moreover, the riskiness of the enterprise mannequin units Dynex up for doubtlessly steep losses if the financial system slips into recession and defaults rise.

This makes the inventory pretty dangerous. Regardless of the excessive dividend yield, traders searching for month-to-month earnings have higher selections with extra favorable progress prospects and safer dividends elsewhere.

Don’t miss the sources beneath for extra month-to-month dividend inventory investing analysis.

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