Investment Thesis
I believe that Dynex Capital (DX) represents a relatively safe pick in the mREIT space, and an investor can capitalize on a lesser-known name with widening valuations from its peers. Dynex also offers up a sizable dividend of 11.2%, which allows you to get paid to wait if the price drops after you buy it. The hedges that the company employs guards against rising rates, and unless the yield curve inverts, DX should at least be able to maintain earnings.
Business Model and Portfolio
Dynex Capital is a mortgage REIT and invests primarily in residential and commercially backed mortgage securities. In addition to these fixed rate and adjustable rate varieties, they also hold some US treasuries and interest-only CMBS.
Source: Q1 earnings slides
It may seem odd that the company has grown their fixed rate RMBS holdings, but they have done this on purpose. Believe it or not, the fixed rate RMBS is where DX is achieving the best net interest spread among “safe” investments.
