ARR Q4 2025 Earnings Call Confirms Dividend Strain and Persistent Book Value Volatility

What happened

Armour Residential REIT's Q4 2025 earnings call revealed distributable earnings per share of approximately $0.71, just below the quarterly $0.72 dividend, underscoring continued thin coverage. Book value per share dipped to $17.30 from $17.49 in Q3, reflecting ongoing agency MBS spread pressures and high leverage near 8x debt-to-equity. Management maintained the $0.24 monthly dividend for February 2026 but emphasized reliance on the external manager's $550k monthly fee waiver to avoid a cut. The call highlighted aggressive equity issuance throughout 2025, which has diluted per-share value while funding portfolio growth. Overall, the results confirm a fragile equilibrium with no margin of safety, as earnings fail to sustainably cover the payout amid volatile market conditions.

Implication

The Q4 earnings call reinforces that distributable earnings are barely covering the dividend, increasing near-term risk of a cut if agency spreads widen or the fee waiver ends. Book value erosion continues due to high leverage and external management fees, eroding long-term shareholder value without compensating discounts. Management's reliance on equity issuance for liquidity and growth further dilutes existing holders, highlighting weak capital allocation discipline. With the stock trading around book value, the risk-adjusted return profile is unfavorable compared to lower-risk income alternatives or agency mREIT peers. Investors should monitor Q1 2026 results for coverage improvements or consider trimming exposure ahead of potential dividend actions if earnings do not rebound.

Thesis delta

The Q4 2025 earnings call does not alter the core 'POTENTIAL SELL' thesis, as it confirms distributable EPS remains near the dividend threshold and book value volatility persists. No material improvement in spread economics or fee structure was reported, keeping the investment case dependent on fragile external supports. Thus, the recommendation stands: avoid new purchases unless ARR trades at a deep discount to book, such as $14 or lower, to compensate for heightened risks.