AGNC post dividend depression: Buying Opportunity!

So, AGNC pays out $1.25 in dividends. But the stock slumps $2.50. Sounds like a buying opportunity and post dividend depression.

I'll take the $1 bounce in the next 10 days, rather than waiting 3 months for the next $1.25 dividend

Lets see how it plays out.

AGNC past dividend paydate - BUY opportunity

AGNC is post dividend. Why would this make it a buying opportunity? The great thing about AGNC is the huge dividend - $1.40 per share every quarter - nearly 20% p/a. The bad thing about AGNC is the stock goes down by at least the amount of the dividend every time the payout is announced. You can't pay out that much money to investors without it being reflected in the stock valuation.

However,  when the dividend is announced, the stock gets hammered down usually by even more than the  $1.40 per share that is paid out. This is the market over-reacting to the big payout. This is where the opportunity lies.

For the attentive trader, this gives us the opportunity to get in and out of AGNC during it's dividend cycle, and actually make more profit per share than the dividend pays out.

Action to Take: Buy AGNC at $28 or below, during the next 3-4 days, before it starts to climb again.

Put in an automated sell to sell at $30, or an alert so you are notified when it reaches $30 and you can bank more profit than even a 20% dividend pays out. If we are lucky, we might make around $2 a share within the next 6 weeks.

If you don't think this strategy will work, just keep it for the dividend.

AGNC quarterly dividend paid $1.40 19.55% p/a yield at current price

I timed the entry on this AGNC short trade perfectly

I timed the entry on this AGNC short  trade perfectly, but tightened up my trigger way to much when it started to show some profit. So I came up with some revised rules about how to set trade exit triggers. Triggering too early in this AGNC short trade, I covered my commission, but then adjusted the trigger too soon and too tight. The trigger closed the position at a negligable profit, but the next day there was a huge gap down to the price that would have allowed taking a 3% profit in only 3 days - which is right on target for my desired profitability of 1% profit per day in the market.

First cover your commission, to make sure you are not preoccupied with commissions eating into your profits because of trading too much. If you a just a small investor where you are measuing the success of a trade in how it compares to paying your monthly electricity bill, this is a factor, even with $10 commissions.  


Next set the trigger to about the Average Daily Range above the closing price, on a daily basis for the sort of momentum/swing trades I do.  On the AGNC trade, this would have been about 40c above the Friday close, so $28.98. That would have locked in a good chunk of the gap down, but leaving some space for the likely volatility that may occur because of the sharp dip in price.

Short AGNC at $29.40

Halfway through it's quarterly dividend cycle, AGNC is due to a correction. Target profit $1 - $2 per share within the next 15 trading days.

Closed AGNC Long Trade at $27.65 2% profit in 8 days

This trade went very much as planned with the entry point catching the bounce off the lower bollinger band after the post dividend sell-off.  I had a tight trailng stop from the second day when this trade went profitable. The EMA8 getting close to the EMA20 last week could have been another profitable entry point because of the increased earnings, but wasn't in my trading plan to do this.

My next planned entry point is after the next dividend announcement. I'm also contemplating putting AGNC back in my income portfolio just for the dividend, instead of trading it back and forth.

Closed AGNC short trade at $28.10 5% profit in 5 days

This trade worked out pretty nicely, although I could have waited a day later to enter. I had anticipated this AGNC short trade some time ago in a previous post, after observing that because of the large dividend payouts every quarter, the stock drops by exactly the $1.40 dividend amount every time they pay out. So why wait for the dividend when you can short the stock just prior to the record date, and make the dividend as a short sale in a week or so rather than waiting months to get your dividend. Your money gets to work somewhere else for three months.

My plan was to exit when the candles penetrated the lower bollinger band, but the market is on a strong rally this week. Making money on a short trade while the market is going down is one thing, making money on a short trade while the market is moving against you is another.

So I decided that 5% profit in 5 trading days was OK. Effectively, I was getting paid the AGNC dividend in 5 days, rather than waiting three months like a traditional dividend investor would. I'm not convinced that a company paying out so much cash every quarter is destined to last at these pay out rates anyway.

I also made money trading AGNC midway through the summer (see the earlier post), so it has been treating me well in the choppy sideways market of the last few months.

Close AGNC Long position with 3% profit in 3 days

The current environment makes me nervous. Good news, bad news.

So I couldn't leave 3% profit in two days on the table in this AGNC trade, even though it was bought for my income portfolio because of the 20% dividend.  It jumped right into the upper bollinger band which is a signal to considering taking profits on a Swing Trade.  My trading plan originally had my profit point for this trade above the amount I would earn from the next dividend payment. But with AGNC outperforming the market in the yesterdays little rally, I decided to take the profit off the table in case the unemployment figures tomorrow cool off things.

I'll still have a chance to earn the generous AGNC dividend by picking another entry point before the dividend record date.

Taking NLY profits at $17.50

Taking some NLY profits from 30% of my NLY position off the table at $17.50 on 6/16, with around $3 per share profit. I sold it because the candles were crossing into the 9-day EMA. However you can see from the chart my timing could have been a fraction better as it jumped to $18.10 before losing momemntum, with the candles staying about the EMA-9 for another 5 days.  But it's now trading below my sell price and will probably drop further based on the green moving EMA-9 just about to cross downwards over the red EMA-26.

Like AGNC, NLY is a mortgage REIT, and cycles based on the quarterly dividend, so a good rentry price would be $15 or under within the next 2 months.

Sold AGNC at $28.50

Sold AGNC position at $28.50.  AGNC drops by almost exactly the amount of their dividend once they announce the dividend at the end of the quarter. Because my capital gain of over $2 per share healthily exceeds the $1.40 per share dividend, I'm taking the capital gain rather than the dividend.

You can see this clearly on the graph, with the big purple arrows showing the quarter dividend announcements and subsequent drop.  I'll buy into AGNC again if it drops of to $25.

Next time I'll try and sell it short as well.

Income Portfolio Analysis

The next few months are going to provide an excellent test of the Daily Income for Life trading and investing strategy.

After I dump my last remaining Active Trading (NOK, TNP) and underperforming income positions (AWP) tomorrow to stem further losses, I will only have income stocks remaining. I'm shorting one tech stock (HXL), but am not attached to the result. Catching it's correction might for a small gain might just make me feel better that I sold my HXL position too early back in April at 20% profit in a month rather than 60% gain in three months I could have made.

Left in the Income Portfolio
AGD
AOD
CPLP
FTR
AGNC
NLY

These stocks are all paying between 10% - 23% in dividends. The income stocks that were yeilding less than 10% were sold to realize capital gains from the last 14 month bull market.

Currently, only FTR does not have unrealised losses after the panic market correction and spiking volatility we saw in the last three weeks. However, because of the high yields,  if I hold these positions long enough they will all turn around eventually and continue to provide long term dividend reinvestment.
As the prices decline further before we reach a stable bottom, the yields relative to price actually will increase. Also, dividend reinvestment will purchase more shares. This should position the Income Porfolio to gain healthily if this correction rebounds. These stocks were all purchases with the long term investment and dividend reinvestment in mind. Gains that were taken were based on the recent bull market and technical analysis providing solid reasons to exit.

The real question is, what will happen after this correction? Commentary is all over the map right now. The only sure thing is that trust in the entire financial system will sink to yet another low after the two shocking down days in the last two weeks.