Monday, October 22, 2007

Mortgage Woes Hit Thornburg's 21 Percent Dividend Yield

The mortgage fallout first hit Thornburg Mortgage (TMA-$9.46) back on August 9 when analysts voiced concerns that the lender could face margin calls—even though its mortgage backed securities were AAA-rated.

Would the mortgage woes also hit Thornburg's quarterly dividend payout of 68 cents per share? “I'm pretty confident we're going to be able to make that payment,” said Thornburg President Larry Goldstone, in an interview with CNBC.

On October 17, the mortgage company
canceled its dividend.

"We are concerned about the potential for another mini-liquidity crisis in the market going forward," Goldstone said as the company announced a third quarter loss of $8.83 per share, vs. earnings of 64 cents a year ago.

Goldstone said the board of directors were divided on whether to pay out a dividend. The company had the money, he said, but wanted to save cash because of heightened worries about structured investment vehicles, or SIVs, that hold hundreds of billions of dollars of mortgage debt. Rising mortgage default rates have hurt the value of this debt, putting at least some SIVs in trouble.

The decision to not pay out a dividend was “unexpected and unusual,” according to many mortgage analysts.

Who pays the salaries of these highly-paid Wall Street clowns?

Like other big players in the mortgage-backed securities market, Thornburg sold billions of dollars of its mortgages in the last two weeks of August—at a huge discount—in a move to increase its liquidity during the ongoing credit crunch.

Declining mortgage values sank Thornburg's book value to $12.40 per share on August 20 from $19.38 per share at the end of June.

Apparently the old adage still applies: If it sounds too good to be true, it probably is. In our view, Goldstone's equivocating notwithstanding, a dividend yield on its common stock of about 21 percent (stock price - $13.00) was more than convincing evidence that Thornburg would not be able to continue paying its common stock dividend.
Editor David J. Phillips does not hold a financial interest in any mortgage originator. The 10Q Detective has a Full Disclosure Policy.


Anonymous said...

I don't know if TMA will succeed of fail going forward. I have already had to correct one author about TMA missing its upcoming dividend. This author also needs to be corrected. The interview with Larry Goldstone that is referenced in the article was specifically addressing the September dividend that was postponed from August. Larry said he expected to make that payment. TMA did make that dividend payment as promised by Goldstone. Future dividend payments are in jeopardy until announced by the board. Analysts should not be surprised TMA would skip one or more dividends as they had paid out much of 2007 taxable income already. Just get it correct that the August interview with Goldstone was about the delayed (and eventually paid) dividend/ distribution.

Anonymous said...

The CNBC interview in August was in reference to the 2Q dividend, which they delayed, but paid on September 17. The company didn't say anything about a 3Q dividend in August on CNBC.

David J. Phillips said...

Thank you for the correction; As late as mid-September, however, TMA still lulled investors into thinking the 3Q dividend would be paid.