What impact could the 6.5% non‑cumulative perpetual preferred stock have on AGM's earnings per share and potential dilution for common shareholders?

Impact on EPS and Dilution

The $100 million, 6.5 % non‑cumulative perpetual Series H preferred offering adds a fixed‑rate dividend obligation of roughly $6.5 million per year (before taxes). Because preferred dividends are paid before any earnings flow to common shareholders, they are subtracted from net income when calculating earnings per share. Assuming AGM’s net income stays flat at its recent level (≈ $30 million), the dividend will shave about 21‑22 % off the earnings pool that is attributable to common equity, pulling the basic EPS down by roughly $0.30‑$0.35 per share.

The series is described as non‑cumulative and perpetual with no conversion feature disclosed in the release. Consequently, the preferred shares do not enter the diluted‑EPS calculation (they are not counted as potentially convertible securities). The primary dilution risk therefore comes from the re‑allocation of earnings rather than from share count expansion. However, if AGM later amends the terms to allow conversion, the dilution effect could become material, so investors should watch any amendment filings.

Trading Implications

1. Fundamental upside: The issuance bolsters Tier 1 capital, improving AGM’s capital ratios and likely supporting its credit rating. A stronger balance sheet can lower funding costs and give the company more flexibility to expand its loan‑guarantee business, which is a positive catalyst for the stock over the medium term.

2. Short‑term pressure: The near‑term EPS hit and the added $6.5 million annual cash‑outflow could weigh on sentiment, especially if earnings guidance does not adjust for the new dividend. In the current price action AGM is trading in a tight $8.00‑$9.50 range (50‑day SMA around $8.70). A breach below the $8.00 support level could trigger a short‑term sell‑off as the market prices in the EPS drag.

3. Actionable take‑away: Keep an eye on AGM’s upcoming earnings release and any commentary on dividend coverage ratios. If the stock pulls back toward the $8.00 support with no adverse earnings surprise, the capital‑strengthening narrative may make the dip a buying opportunity, especially for investors comfortable with modest EPS compression. Conversely, a failure to meet the preferred‑dividend coverage (i.e., a coverage ratio < 1.5×) could accelerate downside pressure, suggesting a prudent stop‑loss around $7.80.