Despite the fact that CYS Investments (CYS) cut its dividend by 10% beginning with its Q3 dividend distribution, it is still providing a solid 12% dividend yield to income oriented investors. We are not surprised to see mREITs cutting per share dividend distributions to investors due to the narrowing spreads that the firms are realizing on the mortgage portfolios. CYS’s quarterly dividend reached its peak of $.60/share in 2011 and remained constant until Q2 2011, when it was reduced to $.55/share in Q3 2011, $.50/share in Q4 2011 and $.45/share in Q3 2012. One of the things we like best about CYS is the fact that its financial reporting is best in class with regards to its mREIT peers. Hallmarks of CYS’s financial reporting include the following:

  • It publishes a schedule of its investments
  • No OCI account on its balance sheet
  • All gains and losses are taken through the income statement
  • CYS’s NAV (per share) reflects mark-to-market accounting since its inception

Despite the fact that CYS reduced its quarterly dividend distribution, its Q2 2012 core earnings did not see much of a decline versus Q1 2012 levels. Despite facing an increasingly challenging investment environment, CYS’s Q2 2012 core EPS (excluding gains from investments and unrealized depreciation on swap and cap contracts) was $.38, versus $.39 in Q1 2012. CYS also realized $.49/share in EPS during the quarter from gains and losses on investments and derivative contracts. CYS’s small decline in Core EPS from Q1 2012 to Q2 2012 compared favorably versus American Capital Agency’s (AGNC) 34% linked quarter decline, which is the most respected mREIT in the industry.

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