Armour Monthly Dividend At 5 Cents, Strong Buy And Hold

ARMOUR Residential REIT Inc. (NYSE: ARR) announced September 18, 2013, the dividend for October, November and December 2013 will have a dividend of $0.05. At the current opening on Friday, September 27, 2013, of $4.23 that would represent an annualized dividend return of over 14%. In a review of its numbers and anticipated market effects from the looming budget battle and deficient battle, we continue to recommend that ARR is worthy of a buy and hold recommendation.

In order to limit exposure to increasing volatility in the mortgage and US Treasury bond markets in Q3 2013, the company reduced its portfolio to approximately $16.1 billion from a high of approximately $26.9 billion in the first half of 2013. The company did not reduce any of its hedge positions since June 30, 2013, which represent 88.6% of repurchase agreement borrowings and resulted in a net balance sheet duration of 1.05 at August 30, 2013. ARR publishes a monthly report on its website. September 10, 2013 report.

In the last 6 months ARR's revenue growth greatly exceeded the industry average of 10.8%. Since the same quarter one year prior, revenues leaped by 63.9%. Growth in the company's revenue appears to have helped boost the earnings per share. Although ARR's stock price has gone down since the Fed's Chief publicly stated the Federal Reserve may soon reduce the dollar amount of bonds they are currently purchasing, the company has profited nicely.

The company's current return on equity has increased when compared to its ROE from the same quarter one year prior. This is a signal of strength within the company. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, ARR's return on equity significantly exceeds that of both the industry average and the S&P 500.

Shares are down 35% year to date, but we anticipate a rebound during the last quarter to over $5.00 per share. Most investors have failed to acknowledge the earnings improvements the company has achiev! ed over the two last quarters. In the September/October quarterly numbers release the overall market is expected to acknowledge the improvements and provide a bounce to the stock price. With the stock's sharp decline last year, now is a positive time for investors to buy in, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry.

The one down side we do see is when the Fed begins reducing purchases in the bond market interest rates will climb and could negatively affect ARR's business operations. Although the company has repositioned itself as stated above, there will be a softening in the market. We do expect ARR's dividend to continue to pay over a 10% return on investment and continue to recommend our buy and hold position.

ARMOUR is a Maryland corporation that invests primarily in fixed rate residential, adjustable rate and hybrid adjustable rate mortgage-backed securities issued or guaranteed by U.S. Government-sponsored entities. ARMOUR is externally managed and advised by ARMOUR Residential Management LLC, an investment advisor registered with the Securities and Exchange Commission. ARMOUR Residential REIT, Inc. has elected to be taxed as a real estate investment trust for U.S. federal income tax purposes.

Source: Armour Monthly Dividend At 5 Cents, Strong Buy And Hold

Disclosure: I am long ARR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)

Additional disclosure: Information from news releases and the Company's website. Investors should always ensure the investment meets their goals and risk standards, as any investment can increase or decrease in the market.