Dynex Capital, Inc. ( DX ) primarily invest in agency mortgage-backed securities. It focuses exclusively on the secondary market rather than originations. Agency MBS is issued by Fannie Mae, Freddie Mac, and Ginnie Mae. It doesn't haveI focus on thematic investing, crisis investing, systematic options trading through both premium selling and long-vol positions, and discretionary global macro. I have experience with private M&A along with many years of publicly-traded equities and equity-based derivatives tr ...

Dynex Capital, Inc. ( DX ) primarily invest in agency mortgage-backed securities. It focuses exclusively on the secondary market rather than originations. Agency MBS is issued by Fannie Mae, Freddie Mac, and Ginnie Mae. It doesn't haveI focus on thematic investing, crisis investing, systematic options trading through both premium selling and long-vol positions, and discretionary global macro. I have experience with private M&A along with many years of publicly-traded equities and equity-based derivatives tr ...

PresentationOperator Sorry about that. Thanks so much for joining us and welcome, everyone, who's on the conference call, and thanks so much for those who came in person. We really appreciate it. Let me begin today by acknowledging the traditional owners of the lands in which we meet here in Sydney, the Gadigal people of the Eora Nation. I pay my respects to their elders past and present and pay my respects and extend my respects to the Aboriginal and Torres Strait Islander people here today and on the call ...

Core Insights - The article discusses the anticipated economic environment in 2026, highlighting expected interest rate cuts and the impact on various sectors, particularly mortgage REITs and pharmaceutical companies. Group 1: Interest Rates and Mortgage REITs - Interest rates are projected to decline, with Fed Chair Jay Powell having already implemented two rate cuts, and more expected under Kevin Hassett's leadership [3][4] - Mortgage REITs like Annaly Capital (NLY) and Dynex Capital (DX) are well-positioned to benefit from falling rates, with yields of 12.3% and 14.7% respectively, and potential for significant price appreciation [4][5] - The easing of mortgage spreads, which are crucial for profitability, indicates a favorable environment for these mortgage REITs as they hold government-backed securities [5][6] Group 2: Pharmaceutical Industry and AI - The pharmaceutical industry is set to experience accelerated drug discovery cycles, potentially reducing the time from development to market from 10-15 years to 3-6 years due to AI advancements [7][8] - Companies like BlackRock Health Sciences Term Trust (BMEZ) are positioned to benefit from this trend, yielding 8.6% while investing in innovative drug development firms [9] - Danaher (DHR) is highlighted as a key supplier in the life sciences sector, providing essential tools and consumables for drug development, which are expected to see increased demand due to AI-driven research [11][12] Group 3: Consumer Goods - Hershey Foods - Hershey Foods (HSY) is noted for its strong brand portfolio and resilience despite rising cocoa prices, with management implementing efficiency plans and price increases to maintain cash flow [14][15] - The company has raised its dividend by 70% over five years, indicating a strong commitment to shareholder returns and positioning for a rebound as input costs stabilize [15]

Core Insights - The article discusses the anticipated decline in interest rates and its implications for mortgage REITs like Annaly Capital and Dynex Capital, which are well-positioned to benefit from falling rates and currently offer high dividend yields of 12.3% and 14.7% respectively [1] - The introduction of "Applied AI" in drug discovery is expected to significantly shorten the time required to bring new drugs to market, potentially reducing the cycle from 10-15 years to 3-6 years, which will enhance profitability for pharmaceutical companies [1] - Danaher is highlighted as a key player in the life sciences sector, providing essential tools and consumables for drug development, benefiting from increased R&D activities driven by AI advancements [1][2] - Hershey Foods is noted for its strong brand portfolio and recent operational efficiencies, positioning it for a rebound after a period of margin compression due to rising cocoa prices [2] Mortgage REITs - Annaly Capital and Dynex Capital are expected to thrive as interest rates decline, with their portfolios consisting of government-backed mortgages that appreciate in value as rates fall [1] - The mortgage spreads, which are crucial for profitability, have been easing, creating favorable conditions for these mortgage REITs [1] Pharmaceutical Industry - The integration of AI in drug discovery is projected to compress development timelines, allowing companies to monetize successful drugs more quickly and extend their monopoly pricing periods [1] - BlackRock Health Sciences Term Trust is mentioned as a vehicle for investing in innovative drug development companies, offering an 8.6% yield [1] Life Sciences Sector - Danaher is positioned to benefit from increased demand for laboratory tools and consumables as pharmaceutical companies ramp up R&D efforts, driven by AI [1][2] - The company avoids the political challenges faced by drug manufacturers, focusing instead on providing essential support for drug development [1] Consumer Goods - Hershey Foods has implemented a two-year efficiency plan and raised prices, which has helped it maintain cash flow despite rising input costs [2] - The company has increased its dividend by 70% over five years, indicating strong shareholder returns and potential for future growth [2]

Core Viewpoint - Dynex Capital offers a high dividend yield of 14.6%, which raises skepticism regarding its sustainability and potential risks associated with such a high return [1][4]. Company Overview - Dynex Capital is a real estate investment trust (REIT) that has been making consistent monthly dividend payments since 2008, despite some fluctuations in the dividend amount [2][3]. - As a mortgage REIT, Dynex invests heavily in residential mortgage-backed securities, which can lead to significant earnings volatility influenced by interest rate movements [4][6]. Dividend Sustainability - The company has a high payout ratio, and its trailing 12-month free cash flow yield is significantly lower than its dividend yield, indicating potential risks to the sustainability of its dividend payments [4][6]. - While the company has a good track record, the complexity of its hedging strategies, which involve derivatives like interest rate swaps and futures, adds to the difficulty in evaluating its financial stability [6]. Investment Consideration - Investors may consider Dynex Capital for passive income opportunities, but it is not recommended as a top dividend holding due to the associated risks and uncertainties [7].

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Core Insights - The article promotes Systematic Income's Income Portfolios, which are designed with a focus on yield and risk management considerations [1] Group 1 - Systematic Income offers powerful Interactive Investor Tools to assist in navigating various financial markets, including BDC, CEF, OEF, preferred stocks, and baby bonds [1] - The company provides a no-risk opportunity for potential clients to explore its services through a 2-week free trial [1]

Financial Performance - In Q3 2025, Dynex Capital's book value increased by $0.72 per common share, driven by a decline in the 10-year U.S. Treasury rate and tightening mortgage spreads [125]. - Total comprehensive income to common shareholders for the quarter was $162.5 million [126]. - Comprehensive income to common shareholders for the three months ended September 30, 2025, was $162,527,000, compared to a loss of $12,222,000 for the previous quarter [147]. - The company’s net income to common shareholders for the quarter was $147,561,000, a significant recovery from a loss of $16,286,000 in the previous quarter [147]. - For the nine months ended September 30, 2025, the total net gain on investments was $401.892 million, compared to $136.011 million for the same period in 2024, reflecting a significant increase [167][169]. Income and Expenses - Net interest income for the quarter was $30.6 million, with net interest spreads continuing to improve [126]. - Net interest income rose to $30,611,000 for the three months ended September 30, 2025, up from $23,128,000 for the three months ended June 30, 2025, reflecting a net interest spread improvement [147]. - For the nine months ended September 30, 2025, net interest income improved to $70.872 million, compared to a net interest expense of $1.010 million for the same period in 2024, reflecting a significant recovery in net interest spread from -1.00% to 0.33% [159][161]. - Operating expenses for the nine months ended September 30, 2025, increased by $9 million compared to the same period in 2024, primarily due to higher salary, bonus, and share-based compensation expenses [169]. - Operating expenses for the three months ended September 30, 2025, declined slightly due to lower share-based compensation expenses [158]. Investment Portfolio - Agency RMBS portfolio increased by approximately $5.2 billion, with $263 million pending settlement as of September 30, 2025 [132]. - The fair value of the investment portfolio increased by $185 million during the three months ended September 30, 2025, primarily due to a decline in the 10-year U.S. Treasury rate [153]. - The fair value of the investment portfolio increased significantly during the nine months ended September 30, 2025, primarily due to the tightening of mortgage spreads to U.S. Treasuries [165]. - The total change in fair value of the investment portfolio for the nine months ended September 30, 2025, was $324.538 million, compared to $101.980 million for the same period in 2024 [167]. Capital and Leverage - The company raised approximately $256 million from stock issuance during the quarter, contributing to a total capital increase of approximately 60% compared to December 31, 2024 [126][130]. - The leverage ratio trended down since Q2 2025, primarily due to asset appreciation [125]. - The leverage ratio was 7.5 times shareholders' equity as of September 30, 2025, reflecting the company's view on risk-reward opportunities [186]. - The leverage based on repurchase agreement amounts outstanding was 6.0 times shareholders' equity as of September 30, 2025 [187]. Market Conditions - The Federal Open Market Committee lowered the target U.S. Federal Funds rate by 25 basis points to a range of 4.0% to 4.25% in September 2025, with further cuts expected [117]. - Mortgage rates are trending down, leading to increased refinance activity at the end of Q3 2025 [119]. - The average market yield for the total Agency RMBS portfolio was 5.03% as of September 30, 2025 [132]. - The weighted average market yield for Agency CMBS was 4.27% as of September 30, 2025, compared to 4.76% as of December 31, 2024 [141]. Risk Factors - The company is exposed to risks from defaults by borrowers on loans underlying mortgage-backed securities (MBS) [212]. - Increased competition and changes in government regulations could affect the company's market position [212]. - Volatility in repurchase agreement financing markets and other credit markets poses risks to operations [212]. - The company faces uncertainty regarding government support for the U.S. financial system and housing markets [212]. - The political environment in the U.S. may influence economic conditions affecting the company [212]. - Systems failures or cybersecurity incidents could disrupt critical business functions [212]. - The company is exposed to current and future claims and litigation risks [212]. Liquidity and Financing - Liquidity as of September 30, 2025, was over $1 billion, consisting of $491 million in unrestricted cash and $584 million in unencumbered Agency MBS [183]. - The balance outstanding for repurchase agreements as of September 30, 2025, was $11,753,522 thousand, an increase from $8,600,143 thousand as of June 30, 2025 [189]. - Cash collateral posted to counterparties under derivative agreements was $333 million as of September 30, 2025 [192]. - The company issued 61,025,405 shares of common stock through its ATM program during the nine months ended September 30, 2025, resulting in proceeds of $776 million [182]. Tax and Compliance - The company is required to distribute at least 90% of its REIT taxable income to shareholders, impacting dividend declarations [196]. - The company had $500 million in capital loss carryforwards as of September 30, 2025, with most set to expire by December 31, 2028 [198]. - Projected net deferred tax hedge gains to be recognized as taxable income total $687,541,000 over the next several fiscal years [198]. - The company was in full compliance with its debt covenants as of September 30, 2025, and does not anticipate any non-compliance issues in the near future [191].

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