Dynex Capital, Inc. Q3 2024 Financial Results

Dynex Capital, Inc. (NYSE: DX) reported strong financial results for Q3 2024, showcasing a 7% economic return and a 6.5% year-to-date return. During the earnings call on October 21, 2024, it was announced that the common dividend would increase by 15%, from $0.13 to $0.15 per share.

Key Takeaways

• Dynex Capital reported a 7% economic return for the quarter and a 6.5% year-to-date return.
• The common dividend was increased by 15%, from $0.13 to $0.15 per share.
• Executives highlighted a favorable investment environment with declining funding costs and a steeper yield curve.
• The company raised $56 million in new capital and reported a book value of $13 per share.
• Management remains optimistic about the company's performance in 2025 and beyond, focusing on navigating near-term event risks.

Company Outlook

• Management is optimistic about 2025, aiming to navigate near-term event risks, especially surrounding the upcoming election.
• The company is prepared for potential rate movements and prepayment risks, expecting a terminal Fed funds rate between 3% and 4% and mortgage rates between 5% and 7%.
• Dynex is strategically preparing for potential market volatility around the November 5 election by locking in forward financing costs.

Bearish Highlights

• Expenses rose due to performance-based compensation.
• Realized hedge losses could lower distribution requirements, though cumulative benefits remain strong.

Bullish Highlights

• The investment environment is favorable for positive carry and increased earnings.
• Interest income improved with the addition of higher-yielding assets.
• Dynex has grown its capital base since 2020 and plans to continue capital raising efforts.

Misses

• A slight decrease in leverage occurred due to increased book values.

Q&A Highlights

• Management discussed the less restrictive stance of the Federal Reserve and its influence on market expectations for rate cuts.
• The portfolio is expected to perform well in steep yield curve scenarios.
• The company is confident in raising its dividend and achieving returns exceeding the dividend yield.
• The ATM program will primarily be used for capital raising.

Dynex Capital's management team, including Byron Boston and Smriti Popenoe, expressed confidence in navigating the evolving market landscape and delivering shareholder value. Their strategic leverage of capital and effective hedging have increased book value and confidence in future returns. With a focused capital-raising strategy and attention to macroeconomic factors, Dynex Capital maintains a positive outlook for investments and capital deployment, as reflected in its raised dividend and strong third-quarter performance.

InvestingPro Insights

Dynex Capital's financial performance aligns with key insights from InvestingPro, including a 15% dividend increase supported by a yield of 12.35%. The firm has paid dividends for 17 consecutive years.

The positive outlook for 2025 is shown through a 34.78% 1-year total return, with the stock trading at 95.58% of its 52-week high. However, the high P/E ratio of 138.9 may concern value-oriented investors. InvestingPro has more insights available to further clarify Dynex Capital's financial health and market position.

Full Transcript – Dynex Capital Inc (DX) Q3 2024

Operator: Good morning. I would like to welcome everyone to the Dynex Capital Third Quarter 2024 Earnings Conference Call. All lines have been muted. The conference will now begin.

Alison Griffin: Good morning, and thank you for joining us for Dynex Capital's Q3 2024 earnings call. The press release for today was issued and filed with the SEC this morning. You can view it on our website.

Byron Boston: Our economic return of 7% for the quarter continues to highlight the skills and experience necessary to navigate the current environment. We are confident in delivering value to our shareholders.

Smriti Popenoe: The investment environment remains favorable, with positive carry opportunities from the yield curve. We are prepared for near-term risks from U.S. elections and geopolitical developments.

Rob Colligan: Book value ended the quarter at $13 per share, and despite a slight decrease in leverage, we raised new capital. We've increased interest income through higher-yielding assets.

Smriti Popenoe: Our team remains committed to integrity and community support, and we believe Dynex shares offer compelling value as we are optimistic about our future performance.

Operator: Thank you for your participation. You may now disconnect.

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