SOURCE: The Bedford Report

The Bedford Report

July 28, 2011 08:16 ET

Dividends From Annaly and Cypress Sharpridge in Danger if S&P Cuts US Credit Rating

The Bedford Report Provides Equity Research on Annaly & Cypress Sharpridge

NEW YORK, NY--(Marketwire - Jul 28, 2011) - With S&P warning there is 50-50 chance of a downgrade to the US' Credit Rating, investors are looking for safe havens. Traditionally, high yielding REITs garner attention due to their reliable income. However analysts warn that a downgrade to US government debt could have a sizeable impact on REIT earnings -- and their dividends.The Bedford Report examines the outlook for diversified REITs and provides equity research on Annaly Capital Management, Inc. (NYSE: NLY) and Cypress Sharpridge Investments (NYSE: CYS). Access to the full company reports can be found at:

Several mortgage REITs are trading close to 52 week lows at the moment as analysts consider these companies at risk from the potential downgrade of US government debt. Agency Mortgage REITs such as Annaly have portfolios made up principally of mortgages insured by the federal agencies Fannie Mae, Freddie Mac and Ginnie Mae. A downgrade in US debt would make paper from these federal agencies suffer a downgrade along with most other government-related bonds.

According to Jon D Markman, editor of Strategic Advantage, if the paper is downgraded their prices will drop and yields will rise. "When the price of collateral drops, a holder has to put up more money or other paper to replace that value -- much like a margin call," argues Markman. Markman adds that these kinds of developments can lead a REIT to cut back on its dividend.

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Currently Cypress Sharpridge pays an annual dividend of $2.40 per share for a hefty yield of around 18.6 percent. Last week the company reported second quarter GAAP net income of $99.4 million, or $1.20 per diluted share. The Company's interest rate spread net of hedge increased to 2.23% for the second quarter of 2011 from 1.83% in the first quarter of 2011.

Annaly presently pays an annual dividend of $2.60 a share for a yield of around 14.5 percent.

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