September Mid-Month Recap: $866.43 of $1,342.90
I’m down on PFLT from a money perspective. Quite a bit too, about 12%. My average cost is $13.25 and as you can see in the Settlement Price column, PFLT has not broken $13 in 2019. This year has been a stagnant year for PFLT and I believe it is due to the federal reserve and their strangely secretive plan for rates. Lower rates seem to mean bad news for PFLT because when rates fall, refinancing blows up. Apparently, from what I have read, these types of lenders prefer that rates do not encourage refinancing. I would think that refinancing could be a nice unexpected upfront cash flow since it usually costs money to refinance, but that doesn’t seem to be the goal. Stability seems to be the winner with lenders and this particular REIT.
I thought it was interesting that the Jan Drip and the Aug Drip have the same Yield but a $0.15 difference in Additional Div. This is a nice illustration of how this process should yield greater dividend income if you stick to the plan. I’ve said it once and I’ll probably have to continue to say it: Lower prices mean higher yields and in the long-run, that should be your goal.
AGNC and PFLT have similar models. In some capacity, they are giving loans and taking mortgages. AGNC is going to run into the same issues as PFLT.
AGNC gave an interesting presentation this month which was WAY over my head, but did have some interesting take-aways. The one that landed with me was that they check to see the age and balance of a loan when they buy packages. This is because a loan with a lower balance means that the borrower has been paying it off for years and therefore indicates a lower chance of default. I thought this was half genius and half obvious, but I like where their head is at. The antithesis of this act is the chance of prepayment. This means collecting less interest and therefore lowers the value of the loan. Also, it is human nature to believe that the chance of prepayment goes up as the balance goes down. Say you are only five to ten payments left on your 30 year mortgage, you may make a double or triple payment to put an end to it. You are not going to see that sort of payment in year two of a thirty year mortgage.