Western Asset Mortgage (NYSE:WMC) in an mREIT that has seen many dividend cuts over the last 5 years. Given that it recently reported earnings, we decided it was time to check back in on the name to assess performance, and where we see the stock going. In this column, we specifically hone in on specific key metrics that you should be aware of for stocks in this sector. Ultimately, we believe there are simply better places to put your money, even in the fragile mREIT sector, than in this name. While the most recent quarter was better than expected on a few measures, there are still key weaknesses in earnings to be aware of.

We have seen dividend cuts numerous times in this name. In the most recent quarter, the company saw GAAP net income of $21.4 million or $0.51 per share compared to last quarter which saw a net income of $22.8 million or $0.54 per share.

While GAAP numbers are informative and these figures were negative, the best gauge for the dividend coverage is core earnings. Western Asset Mortgage reported that it saw core earnings plus drop income was just $13.0 million, or $0.31 per share. That is also a decline from last quarter, which saw $13.5 million, or $0.32 per share.

The dividend was actually covered this quarter as the $13.0 million in core income translates to $0.31 per share of income. Therefore, we just barely have coverage of the dividend. This is problematic as the last few quarters were tight on coverage throughout 2017.

Overall we see the dividend on high alert, especially after this quarter offering no margin of safety what so ever. Rate volatility was high in the quarter so we were surprised that the dividend was covered at all. Thus far, the company has kept it going. Keep in mind the Fed is going to raise rates in 2018 a few times, so this will hit the sector, and only the best positioned companies with strong management teams will see a benefit.  Back in late 2015 the quarterly dividend was $0.64, now we are at $0.31. Another cut all but guarantees this will be a forever single-digit stock.

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