Monthly Dividend Stock In Focus: Dynex Capital

Updated on April 1st, 2025 by Felix Martinez

Dynex Capital (DX) is a mortgage Real Estate Investment Trust (mREIT) that offers an appealing 15.7% yield, making it a potentially attractive high yield stock.

Dynex Capital also pays its dividends monthly, which is rare in a world where the vast majority of companies pay them quarterly.

There are currently over 76 companies with monthly dividend payments.

You can see the full list of monthly dividend stocks (along with relevant financial metrics such as dividend yields, payout ratios, and more) by clicking on the link below:

Dynex Capital’s high dividend yield and monthly dividend payments make it an intriguing stock for investors, even though its dividend payment has declined in recent years.

However, as with many high-dividend stocks, the sustainability of the dividend is an important consideration. This article will analyze Dynex Capital’s investment prospects.

Business Overview

Dynex Capital is a mortgage Real Estate Investment Trust (REIT). As a mortgage REIT, Dynex Capital invests in mortgage-backed securities (MBS) on a leveraged basis in the United States. It invests in agency and non-agency MBS, including residential MBS, commercial MBS (CMBS), and CMBS interest-only securities.

Agency MBS have a guaranty of principal payment by a U.S. government agency or a U.S. government-sponsored entity, such as Fannie Mae and Freddie Mac. Non-Agency MBS has no such payment guarantee. Dynex Capital, Inc., was founded in 1987 and is headquartered in Glen Allen, Virginia.

The company is structured to have internal management, which is generally positive because it can reduce conflicts of interest. Additionally, when they increase total equity, operating expenses have no material impact. Over time, Dynex’s management team has built a strong track record of generating attractive total returns for shareholders:

Source: Investor presentation

Dynex’s portfolio is structured to be widely diversified across residential and commercial agency securities. This diversified approach creates an attractive risk-to-reward balance that has benefited the company for many years. Over time, the mix of CMBS and RMBS investments has reduced the negative impacts of prepayments on portfolio returns. Furthermore, agency CMBS acts as a cushion in the event of unexpected volatility in interest rates.

Finally, the high-quality CMBS IO are selected for shorter duration and higher yield, with the intended impact of limiting portfolio volatility. A significant portion of Dynex’s Agency 30-year RMBS fixed-rate portfolio has prepayment protection via limits on incentives to refinance.

Management anticipates opportunistically increasing leverage in the high-quality asset portfolio while avoiding credit-sensitive assets that are leveraged with short-term financing. As a result, the company enjoys a highly flexible portfolio that frees management to pivot rapidly to other attractive opportunities as markets remain volatile.

The company reported a total economic return of $0.13 per common share (1.0% of beginning book value) for Q4 2024 and $0.99 per share (7.4% of beginning book value) for the full year. Book value per share stood at $12.70 as of December 31, 2024. Net income was $0.61 per share for Q4 and $1.50 for the year, while comprehensive income reached $0.15 per share for Q4 and $1.30 for the year. The company declared dividends of $0.43 per share in Q4 and $1.60 for 2024. Dynex raised $64.4 million in equity capital in Q4, bringing its total for the year to $332.0 million.

The company reported a 36% increase in interest-earning assets and liquidity of $658.3 million at year-end. Leverage, including TBA securities, stood at 7.9 times shareholders’ equity. Dynex delivered a total shareholder return of 13.7% in 2024 and 27.4% over two years, benefiting from capital deployment amid market volatility. Leadership cited favorable conditions, including a steeper yield curve, lower financing costs, and wide mortgage spreads.

T.J. Connelly was promoted to Chief Investment Officer after serving as Senior Strategy and Research Vice President. With over 25 years of experience in mortgage-backed securities trading and economic research, he will oversee investment, financing, and hedging strategies. He reports to Co-CEO and President Smriti Popenoe, who highlighted his role in driving Dynex’s strong performance.

Growth Prospects

With interest rates rising rapidly and the mortgage market suffering from plummeting demand, Dynex may have a challenging time growing. On top of that, a recession is considered increasingly likely, which could lead to a jump in defaults on Dynex’s investments, posing a further headwind to growth. As a result, when combined with Dynex’s sky-high payout ratio, we expect earnings to decline in the coming years, leading to a likely dividend cut.

Source: Investor Presentation

Finally, Dynex offers several competitive advantages that should enable it to generate strong returns for investors throughout business cycles based on these long-term tailwinds.

Competitive Advantage & Recession Performance

Dynex possesses some competitive advantages, which may bolster investor returns throughout business cycles. These advantages include the accomplished management team with experience in managing securitized real estate assets through multiple economic cycles. Additionally, the trust’s focus on maintaining a diversified pool of highly liquid mortgage investments with the smallest amount of credit risk could be another advantage.

The trust’s normalized diluted earnings per share were quite stable through the last recession, though shares still sold off very heavily, losing about 40% of their market value. Overall, there’s little margin of safety here due largely to the payout ratio being so high, combined with highly volatile earnings-per-share.

Another risk is that prepayment speeds could rise due to seasonal factors. Additionally, the drop in mortgage rates could increase refinancing activity, further cutting into profits.

While some cash-out refinancing is already factored into the company’s prepayment expectations, and their portfolio has been structured to hedge against some of this, there will likely be some lost profits. This explains the company’s recent pattern of dividend reductions since 2019.

Dividend Analysis

The dividend was not fully covered by earnings in fiscal 2024, with negative earnings of -$0.35 in earnings per share compared to a $1.60 per share dividend payout. In 2025, we expect this pattern to repeat itself, with only $1.58 in earnings per share expected to be generated this year. As a result, we expect the dividend to be cut at some point over the next half-decade.

Final Thoughts

Dynex Capital’s high dividend yield and monthly dividend payments make it attractive to high-yield dividend investors. However, we remain extremely cautious about the stock.

The company does not cover its dividend with earnings per share. Furthermore, the riskiness of the business model sets Dynex up for potentially steep losses if the economy slips into recession and defaults rise.

This makes the stock fairly risky. Despite the high dividend yield, investors looking for monthly income have better choices with more favorable growth prospects and safer dividends elsewhere.

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