Dividend Surprise At MFA (MFA)

MFA Financial, Inc. (NYSE: MFA) is a surprise on the dividend front this morning. The company is a REIT that invests in mortgage-backed securities, and while that sounds as though it has all the qualifications for problems the company is actually raising its dividend again.  This time by 14%.

This may seem like a small raise, but you have to consider the ills of the sector.  In December, the company cut its dividend by a penny to $0.21.  It raised its dividend in April to $0.22.  And the new rate today is $0.25.  At the end of 2007, this rate was only $0.10 per quarter.

MFA has a market cap north of $1.5 billion and is said to hold roughly $10 billion in mortgage-backed securities.  One reason that MFA has held up better than many is that most of its mortgages have an implied government guarantee.  If the government is trying to prop up the mortgage market, making those bets with the government guarantee sounds like the winning formula.

We say “implied” because some are Ginnie Mae-back with a solid guarantee, and others have Fannie Mae or Freddie Mac backing.  MFA invests on a leveraged basis in a portfolio of hybrid and adjustable rates.

While its dividend did get as low as $0.05 in 2006, this mortgage REIT actually never eliminated it entirely.

This new rate puts the dividend yield around 14%.  Shares closed at $6.92 and are indicated up around $7.00 in thin trading.  Its 52-week trading range is $3.98 to $7.70 and it trades close to 5 million shares per day.

Jon C. Ogg
July 1, 2009