The reason for my skepticism is risk.

When a company pays a double-digit yield, the risk is higher that the stock is going to perform badly or the dividend is going to be cut. It’s not a guarantee that those things will happen, but it is more likely to happen than when the dividend yield is lower.

With that knowledge, let’s find out whether 15% yielder Dynex Capital (NYSE: DX) is in danger of cutting its dividend.

Dynex Capital is a mortgage REIT. It borrows money and then lends it out at higher interest rates. The difference, after expenses, is called net interest income.

Last year, Dynex generated $5.9 million in net interest income while paying out $117.8 million in dividends. That means it paid 20 times more cash in dividends than it took in.

This year, I expect net interest income to rise significantly to $94.5 million. However, dividends paid are still forecast to be substantially higher at $133.2 million.

The dividend track record isn’t great either. Though Dynex has raised the monthly dividend twice in the past year from $0.13 per share to $0.17, it is still well below where it was 10 years ago.

At the time, Dynex paid a quarterly dividend of $0.72, which is 41% more than the current monthly dividend extrapolated to a quarterly dividend ($0.17 per month equals $0.51 per quarter). That $0.72 per share dividend in 2015 was cut to $0.63 in early 2016, and the company lowered the dividend again in 2017 to $0.54.

Two years later, Dynex began paying a monthly dividend, reducing it again to $0.15 ($0.45 quarterly) in mid-2019 and once more to $0.13 ($0.39 quarterly) in 2020.

So we have a stock that can’t afford its dividend and has cut the payout four times in the past 10 years.

Dynex Capital will very likely cut its dividend again soon.

The dividend is not safe.

Dividend Safety Rating: F

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The post Dynex: Will This 15% Yield Get Cut Again? appeared first on Wealthy Retirement.

Looking at Dynex’s stock chart, we see quite an up-and-down ride. The shares climbed steadily from around $11 in October to nearly $14 in March, but then suffered a dramatic plunge back to $11 in April before partially recovering to around $12.24 today. This volatility reflects the sensitivity of mortgage REITs to interest rate expectations and market turbulence.

Dynex delivered mixed performance in the first quarter of 2025. The company reported comprehensive income of $14.4 million despite posting a net loss of $3.1 million. Book value per share slipped slightly to $12.56, down $0.14 from the previous quarter, resulting in a modest economic return of 2.6% for the quarter.

The company also maintained its monthly dividend of $0.17 per common share, which translates to an annual yield of over 16% at current prices.

Management is preparing for what they call a “more dynamic market.” In the first quarter, Dynex raised $240 million by issuing new stock while buying $895 million in residential mortgage securities and $55 million in commercial mortgage securities.

The company also increased its “to-be-announced” investments – which allow them to gain exposure to mortgage securities without immediately taking ownership – by $430 million. The company maintains solid financial flexibility, with $790 million in available liquidity and a leverage ratio – a key measure of how reliant a company is on borrowed money – of 7.4. (In other words, it’s borrowing $7.40 for every $1 of its own capital. That may seem like a lot, but it’s a reasonable number for a mortgage REIT.)

When we run Dynex through The Value Meter, we see that the stock’s enterprise value-to-net asset value (EV/NAV) ratio sits at 6.38, a bit higher than the average of 5.72 for similar companies.

Meanwhile, its free cash flow-to-net asset value (FCF/NAV) is 0.49% – better than the average of -0.65% for companies with similarly inconsistent cash flow. (Dynex has generated positive cash flow in just two of the last four quarters.)

While Dynex’s premium valuation might raise some eyebrows, its above-average cash flow generation helps justify the price. The company’s economic net interest income rose significantly from $18.8 million to $28 million in the first quarter, showing improving fundamentals despite market challenges.

The Value Meter rates Dynex Capital as “Appropriately Valued” – not a screaming bargain, but fairly priced for investors seeking high dividend income from a company that’s actively positioning for changing market conditions.

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