Safe 9.6% yield can help investors beat inflation


DX stock ideal for income and growth

Rising interest rates hurt many income stocks, but it’s not bad news for all. A dividend-paying stock with high-yield monthly payouts that outperform inflation—which also has great short- and long-term growth potential—is Dynex Capital Inc. (NYSE:DX).

Dynex Capital is an internally managed mortgage real estate investment trust (mREIT) that invests primarily in residential mortgage-backed securities (RMBS), commercial mortgage-backed securities (CMBS) and interest-only CMBS securities. (Source: “First Quarter 2022 Results Presentation”, Dynex Capital Inc, April 27, 2022.)

Dynex Capital also holds investments in securitized single-family residential and commercial mortgages issued by the company from 1992 to 1998.

Unlike the vast majority of dividend stocks, Dynex Capital stocks distribute monthly payments. Most recently, on July 12, Dynex declared a monthly cash dividend of $0.13 per share. With a current share price of $16.55, this equates to a return of 9.6%. This dividend yield is slightly above the rate of inflation, which is at a new 40-year high of 9.1%.

With most stocks down, it’s easy for many companies to brag about their high-yield dividends. This is not the case with Dynex Capital Inc, however. DX stock price hasn’t exactly been on fire lately, but it has certainly outperformed the broader market, trading from:

  • Five percent over the past month
  • Five percent in the last three months
  • Four percent since the start of the year
  • Zero percent year over year

And the outlook for Dynex Capital shares is solid, with analysts providing a 12-month target of $18.42 to $19.00 per share. This indicates potential gains in the range of 11% to 15%.

Chart reproduced with kind permission of StockCharts.com

DX stock has a strong track record of industry-leading three- and five-year total returns. It also has a long history of high-yielding dividends, with a five-year average yield of 11.4%. So its current high yield is no coincidence.

And this payment is safe. In the first quarter of 2022, Dynex Capital had earnings available for distribution of $0.44 per share. During the quarter, it declared three monthly dividends totaling $0.39 per share. (Source: “Dynex Capital, Inc. Announces First Quarter 2022 Results”, Dynex Capital Inc, April 27, 2022.)

That doesn’t mean Dynex Capital stocks are the perfect stocks for income hogs. The company reduced its payments. The last time was in early 2020, around the start of the COVID-19 pandemic. At the time, DX shares paid a monthly dividend of $0.15 per share. (Source: “Dividends”, Dynex Capital Inc, last accessed July 19, 2022.)

The company has taken steps to make its business more stable, which should translate into more dividend hikes. It moved away from CMBCs towards RMBSs.

At the end of 2019, Dynex Capital Inc had 51% of its portfolio invested in agency RMBS, 39% invested in agency CMBS and 10% in other investments. At the end of March 2022, the share of agency RMBS in its portfolio rose to 90.9%. When you consider how badly commercial real estate has been impacted during the pandemic, switching to residential mortgages seems like a prudent move.

The Truth About Dynex Capital Inc.

Dynex Capital shares could be a great option for dividend hogs looking to fight inflation and accelerate their income.

Dynex Capital Inc’s resilient, flexible and liquid balance sheet is designed to withstand economic volatility. This helps explain why the company has a long track record of outperforming in the industry. Recently, it has significantly outperformed the fixed income sector in fiscal 2021 and the first quarter of 2022.

Sallie R. Loera