Dynex Capital (NYSE:DX) executives used the company’s fourth-quarter and full-year 2025 earnings call to highlight strong shareholder returns, a rapidly expanding equity base, and what management described as a shifting policy backdrop that is reshaping the agency mortgage-backed securities (MBS) opportunity set heading into 2026.
Management points to strong shareholder returns and rapid growth
Co-Chief Executive Officer Smriti Popenoe and Chairman and Co-CEO Byron Boston framed 2025 as a standout year for the mortgage REIT, emphasizing a “performance-first” culture and a focus on liquidity and risk management. Boston said Dynex shareholders generated a 29.4% total shareholder return in 2025, driven by both dividends and share price appreciation, in a period marked by “policy complexity” and shifting rate expectations.
Boston also noted that as of the end of the prior week, Dynex’s total equity market capitalization, including preferred shares, was $3 billion. He said the company has “almost tripled” in size in 13 months, which management believes adds resilience, flexibility, and scale.
Portfolio performance and capital deployment in 2025
Chief Investment Officer T.J. Connolly said government policy was a major driver of returns in 2025 and continues to influence the market in 2026. Connolly reported that Dynex generated a 10.2% portfolio total economic return (TER) in the fourth quarter and 21.7% TER for full-year 2025, which he said was the highest TER of the decade.
Connolly described the 2025 setup as attractive because mortgages entered the year at historically wide spreads to hedges amid elevated policy uncertainty. He said the company used that environment to raise capital and deploy it into assets at wider spreads and higher leverage, aiming to support future dividends.
Head of Capital Markets Mike Sartori said Dynex raised capital accretively through its at-the-market program, coordinating closely with the investment team to invest and hedge in real time. He said the company raised and invested more than $1 billion during 2025 as the firm’s price-to-book valuation increased. Sartori added that in the first few trading days of January, Dynex raised nearly $350 million, and that shares outstanding as of the prior Thursday were 199.6 million.
Policy backdrop: GSE retained portfolio growth and MBS spread outlook
Connolly said the return environment may improve even as MBS spreads tighten, citing policy support for housing finance and higher liquidity. He pointed to the Trump administration’s announcement to increase the GSE retained portfolios by $200 billion as a “meaningful technical tailwind” for spreads. Connolly said the development supports valuations and could reset the “spread regime” to a tighter range while limiting spread widening.
Management also discussed supply and demand expectations for 2026. Connolly said that even before the GSE announcement, the company expected demand to overwhelm supply, led by anticipated bank demand of over $100 billion. He said that while GSEs may be price-sensitive buyers and some money managers may reduce overweights as spreads tighten, the balance in agency mortgages is likely to lean toward higher net demand for many quarters.
Executives repeatedly emphasized that while tighter spreads may reduce upside from further tightening, management believes policy support can reduce downside spread-widening risk. In response to analyst questions, Connolly said current dynamics are roughly 150 to 300 basis points tighter than at the end of the third quarter, depending on coupon, but argued that the “tail risk” of sharp spread widening is lower with GSE balance sheets returning as market participants.
Prepayments, security selection, and hedging approach
Connolly said security selection was a key alpha driver in the fourth quarter amid “low but uneven” turnover and periodic refinancing spikes. He said avoiding the most prepayment-sensitive collateral helped protect carry and reduce reinvestment risk, adding that prepayment dispersion is increasingly driven by micro-level factors. Connolly described Dynex’s positioning as emphasizing more structurally stable collateral and avoiding prepayment-sensitive “stories.”
Management also discussed the possibility of further politically motivated housing actions, including changes to G-fees and loan-level pricing adjustments. Popenoe said such interventions are “real and possible,” pointing to the long history of government influence in U.S. housing finance. Connolly said the firm monitors proposals closely, models impacts in its prepayment framework, and continues to focus on mitigating convexity risk.
On hedging, Connolly said Dynex’s hedge book has been roughly a two-thirds/one-third mix of swaps and Treasuries, respectively, and he expects that orientation to continue, potentially with a bias toward swaps in the 60% to 80% range of the hedge book at times. He also said the portfolio’s yield curve positioning is currently more balanced, with less of a steepening bias than in the past, while noting that longer-term he expects a steepening bias to return.
Financial results: book value gains, leverage, liquidity, and dividend coverage
Chief Financial Officer Rob Colligan said Dynex’s 10.2% total economic return in Q4 consisted of $0.51 of common dividends and a $0.78 increase in book value per share. For 2025, Colligan said book value increased $0.75 and the company declared $2.00 of dividends per common share, paid monthly.
Colligan reported comprehensive income of $190 million for the quarter and $354 million for the year. Dynex ended the quarter with 7.3x leverage on total equity and $1.4 billion of cash and unencumbered securities, which he said represented more than 55% of total equity.
He also detailed the portfolio’s growth: the TBA and mortgage-backed securities portfolio began 2025 at $9.8 billion, reached $15.8 billion at the end of September, and finished the year at $19.4 billion. Colligan added that the company continued adding after year-end and had approximately $22 billion in TBAs and mortgages at the time of the call.
Colligan said “current book value,” net of the accrued dividend, had been in the range of $13.85 to $14.05 per share, up 3% to 4% from year-end. For year-end tax disclosure, Dynex estimated $229 million of taxable earnings, which management said covered all preferred dividends and 93% of the common dividend. Colligan said the remaining 7% would be treated as a non-dividend distribution and that dividend tax reporting would be posted to the company’s website by month-end.
On expenses, Colligan said fourth-quarter expenses increased due to higher accruals for performance-related compensation, reflecting strong 2025 results. He said general and administrative expenses as a percentage of capital declined year over year to 2.1% of total equity at the close of 2025 from 2.9% at the close of 2024, and that the expense ratio may stay near year-end 2025 levels until further growth produces additional scale benefits.
The call also included leadership and organizational updates. Boston said Dynex has added personnel across legal and investments, opened new offices in Richmond and New York City, transitioned Connolly into the CIO role, and separated the CFO and COO roles. Boston introduced Meagan Bennett as the company’s new Chief Operating Officer.
About Dynex Capital (NYSE:DX)
Dynex Capital, Inc is a mortgage real estate investment trust (REIT) that specializes in acquiring and managing mortgage-related assets. The company’s primary business involves investing in residential mortgage-backed securities (RMBS), including agency-backed pools issued or guaranteed by government-sponsored entities such as Fannie Mae, Freddie Mac and Ginnie Mae, as well as selected non-agency RMBS. Dynex Capital seeks to generate net interest income by earning interest on its portfolio while employing leverage through secured repurchase agreements and other debt facilities.
In pursuing its investment objectives, Dynex Capital manages portfolio duration and interest rate exposures, with a focus on preserving capital and optimizing yield over the economic cycle.
