The Highest Monthly Dividend In More Than 2 Years Brings MORL's Yield To 23.2%
Summary
The new tax law could impact many economic variables and securities prices.
Possible disruption to the healthcare and housing markets and municipal finances resulting from tax law changes, could make the Federal Reserve less likely to raise rates.
The January 2018 MORL dividend will bring, on a monthly compounded annualized rate, the MORL yield to 23.2%.
The tax bill will have an impact on the business cycle. The two major macroeconomic impacts will be from a form of deficit stimulus and the further widening of inequality.
Performance of MORL and Dividend Projection
For the one-year period ending December 22, 2017, UBS ETRACS Monthly Pay 2x Leveraged Mortgage REIT ETN (MORL) returned 35.7% based on a purchase on December 22, 2016, at the closing price of $15.55, the December 22, 2017 price of $17.49 and the reinvestment of dividends through to December 2017. It does not include my projected January 2018 monthly dividend of $0.7813. It might be noted that the 35.7% total return on MORL was considerably more than the 21.0% total return on the S&P 500 (NYSEARCA:SPY) over that same period.
My projected January 2018 monthly dividend of $0.7813 would be the largest monthly dividend in more than two years. Not since the July 2015 monthly dividend of $0.7853, has MORL paid a higher monthly dividend. The calendar impacts the monthly dividends. Most of the MORL components pay dividends quarterly, typically with ex-dates in the last month of the quarter and payment dates in the first month of the next quarter. The January, April, October, and July "big month" MORL dividends are much larger than the "small month" dividends paid in the other months, since very few of the quarterly payers have ex-dividend dates in that contribute to the dividends in the "small months". Thus, the $0.7813 MORL dividend paid in January 2018 will be a "large month" dividend. However, even just comparing January 2018 relative to the two prior Januarys, MORL's dividend shows improvement. In January 2017 the MORL dividend was $0.7375. In January 2015 the MORL dividend was $0.7196. While typically called dividends, the monthly payments from MORL are technically distributions of interest payments on the ETN note based on the dividends paid by the underlying mREITs, pursuant to the terms of the indenture.
Only three of the MORL components - American Capital Agency Corp. (AGNC), Orchid Island Capital Inc (ORC), and ARMOUR Residential REIT, Inc. (NYSE:ARR) now pay dividends monthly. The composition of the index of mREITs upon which MORL is based, is such that all of the quarterly dividend payers had ex-dates in December 2017. Thus, all of the monthly and quarterly payers will contribute to the January 2018 monthly dividend. Only Istar Inc (STAR) ,which does not currently pay any dividends will not contribute to the January 2018 monthly dividend. Having all components except STAR contributing to the monthly dividend was also the case for the January 2017 dividend. However, in December 2015 there was one component quarterly paying component, RAIT Financial trust (RAS) that did not contribute to the January 2016 dividend, since it had a January 2016 ex-date. It might be noted that in December 2015 RAS was the component with the smallest weight in the index, with a weight of only 0.81%. RAS is no longer in the index.
My projection for the January 2018 dividend for MORL and its essentially identical twin UBS ETRACS Monthly Pay 2X Leveraged Mortgage REIT ETN Series B (MRRL) of $0.7813 is calculated using the contribution by component method. Market Vectors Mortgage REIT Income ETF (MORT) is a fund that is based on the same index as MORL and MRRL. MORT pays dividends quarterly rather than monthly. As a fund, the dividend is discretionary by the fund management as long as it distributes the required percentage of taxable income to maintain its investment company status. Thus, it does not lend itself to dividend projections as an ETN like MORL, which must pay dividends pursuant to an indenture. The table below shows the ticker, name, weight, price, dividend, contribution to the dividend and ex-date for the MORL components.
Five-year Review
I have owned MORL for a little more than five years. In my articles about MORL, I have included a statement to the effect that:
Aside from the fact that with a yield 23.2%, you get back your initial investment in less than five years and still have your original investment shares intact, if someone thought that over the next five years, interest rates would remain relatively stable, and thus, MORL would continue to yield 23.2% on a compounded basis, the return on a strategy of reinvesting all dividends would be enormous. An investment of $100,000 would be worth $283,377 in five years. More interestingly, for those investing for future income, the income from the initial $100,000 would increase from the $23,200 initial annual rate to $65,633 annually.
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