New York Mortgage Trust (NMTR.OB) announced a $0.06/share common stock dividend for the first quarter of 2008. The dividend pleasantly surprised investors, who sent the stock up 12% on slightly higher than normal volume.
As nice as it is to see that NYMT can pay a dividend, I can't believe it's anything but a return of capital. At December 31, 2007, the Company had $27 million of net operating losses for tax purposes and the associated deferred tax asset had a full valuation reserve against it.
Furthermore, the Company had to raise $57 million in capital in a PIPE transaction during the quarter, and disclosed in the 10-K that as of March 31, "in aggregate, our Agency MBS portfolio was financed with approximately $431.7 million of reverse repurchase agreement borrowings with an average advance rate of 91% that implies an average haircut of 9% for the entire portfolio."
That's an extremely high haircut compared to the 5% that the agency mREITs are looking at and even higher than the 7% rate that forced Crystal River Capital (CRZ) out of agency securities.
So why declare a dividend when you don't have taxable income or even taxable gains? Perhaps the dividend is an attempt to appease the investors who paid $4.00/share for NYMT stock just two months ago and could have gotten it last week for $2.00/share. Time will tell, but if the dividend is nothing but a return of capital, NYMT shareholders have just been handed fool's gold.
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