ARR - Armour Residential: The 15% Yield Indicates Trouble May Be Brewing

2024-07-07 05:16:22 ET

Summary

• Armour Residential is a real estate investment trust that primarily invests in mortgage-backed securities in the residential mortgage market.
• The company earns income from interest payments on the underlying mortgage loans in its portfolio.
• Shareholders have experienced a significant loss in investment value over the past three years compared to the S&P 500.
• In my view, with an overleveraged balance sheet and dividends that are unsupported by the current earnings run rate, I would avoid shares.

Introduction

Armour Residential's (ARR) shares have been headed in one direction and one direction only. And that's down. Over the three years, shares of Armour have tumbled 66%, losing two thirds of their value. While the company has been paying a fat dividend to shareholders, I view the current distribution as being unsustainable, even in spite of several cuts. With the current yield at 15%, the market seems to be hinting at signs of trouble. In this article, I'll explain the risks I see with Armour Residential and why I would avoid the company's shares today....

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