Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body. The company's recent dividend cut and aggressive increase in shares outstanding over the past year is a strong sign that management is concerned about its cash position. ORC has proven to be pretty solid in delivering good dividends. Cue the next dividend cut Is anyone buying at this level? Price is now at the pre-pandemic level. The company experienced some uptick in the fourth quarter of 2022 but the difficulties are very likely to continue in 2023 as well. Due to all of this uncertainty, I am not currently planning to purchase any mortgage REIT stocks, despite their appealing valuations and dividend yields, but will be actively monitoring the situation. And when interest rates are on the rise as they are today, bond prices fall so that the yield remains high enough to compete with newly issued bonds. Besides, I'm making more than the dividend pays by selling puts, so if I end up owning it again, it'll be at a lower price and higher yield. My entire rating history for the company is shown below: Harrison Schwartz Seeking Alpha Rating History For ORC (Seeking Alpha). The Motley Fool has a disclosure policy. That means book value is expected to be down more than 20% from the second quarter. The stock went through a very turbulent year during the pandemic. Companies pay quarterly or monthly and investors therefore have a reliable and predictable asset. Learn More. The economic numbers announced today highlight the difficulty for investors today, where weak numbers bring recession fears and strong numbers bring Fed fear, said Louis Navellier, founder and CEO of grow. ORC already lowered its dividend from .08 to .06 bs k in April 2020. Making the world smarter, happier, and richer. The structured Agency RMBS comprise of interest only, inverse interest only, and principal only securities. Invest better with The Motley Fool. Big dividend yields aren't always what they seem even though they tend to attract a lot of investor attention. Orchid Island (ORC) Stock: Does 15% Price Drop Make It Safer? While this is not a lot of money, it is consistent money that underlies the entire operation of the REIT. Analysts fell to the sidelines weighing in on Omega Healthcare (OHI Research Report) and Orchid Island Capital (ORC Research Report) with neutral ratings, indicating that the experts are neither bullish nor bearish on Orchid Island Capital, Inc. operates as a specialty finance company, which engages in investing in residential mortgage-backed securities (RMBS). The Orchid Island Capital stock price fell by -2.47% on the last day (Thursday, 29th Jun 2023) from $10.52 to $10.26.During the last trading day the stock fluctuated 1.49% from a day low at $10.25 to a day high of $10.40.The price has been going up and down for this period, and there has been a 0.2% gain for the last 2 weeks. Orchid Island Capital (NYSE:ORC) Shares Pass Below Two Hundred Day Moving Average of $10.82 americanbankingnews.com - June 25 at 7:40 AM: Orchid Island Capital, Inc. (NYSE:ORC) Declares $0.16 Monthly Dividend marketbeat.com - June 16 at 7:51 AM: Orchid Island Capital Announces June 2023 Monthly Dividend and May 31, 2023 RMBS Portfolio . Please disable your ad-blocker and refresh. This brings us to Orchid's earnings. Bei der Nutzung unserer Websites und Apps verwenden wir, unsere Websites und Apps fr Sie bereitzustellen, Nutzer zu authentifizieren, Sicherheitsmanahmen anzuwenden und Spam und Missbrauch zu verhindern, und, Ihre Nutzung unserer Websites und Apps zu messen, personalisierte Werbung und Inhalte auf der Grundlage von Interessenprofilen anzuzeigen, die Effektivitt von personalisierten Anzeigen und Inhalten zu messen, sowie, unsere Produkte und Dienstleistungen zu entwickeln und zu verbessern. Good Luck. Log in to see them here or sign up to get started. On the other hand, income-oriented investors should be cautious with ORC in my opinion. Why Is Orchid Island Capital's Dividend So High? Proven solutions for both high income & high growth with isolated risks. A number near or above 0.75 is usually accepted as an indication of strong correlation. Zacks' proprietary data indicates that Orchid Island Capital, Inc. is currently rated as a Zacks Rank 4 and we are expecting a below average return from the ORC shares relative to the market in . I have no business relationship with any company whose stock is mentioned in this article. And ORC was no exception. The next chart shows the next 1-year total return on ORC (including price appreciation and dividend) when the purchase was made under different yield spread relative to the BAA bond. *Average returns of all recommendations since inception. They really do so this year.and even with these lower coupons, while they do not cover the dividend in and out of themselves, in conjunction with the benefits of the hedgeshortfall in the near-term, which I'm not sure that would be, we still view this as much more desirable. Robert Cauley - Chairman and CEO. Income generated for distribution to our shareholders is based primarily on the net interest margin earned on our leveraged Agency RMBS portfolio. Further, dividends are predictable. Please. That's not a trajectory that investors want to see. The only way that can happen is if the stock price falls along with the dividend, which is exactly what has transpired. Orchid Island's eroding fundamentals have caused a significant drop in its dividend payments to shareholders in the past several years. It also has a high debt ratio. Cookie Notice Updated (). Fannie Mae has forecasted a 1.5% drop in housing prices while Freddie Mac predicted a decrease of 0.2%. Intraday Data provided by FACTSET and subject to terms of use. I have not always been bearish on ORC and was a bull during the 2020 dip. However, this does not reflect all aspects of the upcoming struggle in the RMBS market and high-interest rates throughout the year. Since the end of Q3, Treasury rates have risen by ~70 bps, so I expect this has caused its book value to slide by ~17% to around $3.9. First, Orchid's monthly dividend has been on a downward trend the past few years. A high payout ratio might seem great on its face, but when it's too high -- in the case of REITs that would be 100% or more -- then it's a problem. Orchid Island Capital is a notable example of an mREIT that focuses almost entirely on agency mortgage-backed securities and uses higher leverage. . Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services. Most mortgage REITs borrow in the short-term repurchase market and use that capital to buy mortgage-backed securities (pools of mortgages) with longer maturities, often at 8-12x leverage. Yield and stock price go in opposite directions, with a falling price leading to a higher yield and vice versa. Annaly and AGNC both saw their book values decline in the third quarter. Intraday data delayed at least 15 minutes or per exchange requirements. Orchid Island Capital Inc (NYSE:ORC), a mortgage real estate investment trusts (reits) company based in United States, received a lot of attention from a substantial price movement on the NYSERead . Here's Why. We invest in residential mortgage-backed securities which are issued and guaranteed by a federally chartered corporation or agency (Agency RMBS). Read more to see why prospects for ORC are not good. Most mREITs are priced at some multiple to BV, sometimes trading at a premium like ORC does today or sometimes at a discount. Overall home prices are predicted to lower by 2.3% in 2023. PDF Orchid Island Capital, Inc. (ORC) - Sure Dividend recovered. Should You Invest in the Invesco KBW High Dividend Yield Financial ETF (KBWD)? That's not a particularly complicated business model. I get that book value is important, as well as yield spread generally, but missing in my view is one third of the needed discussion. Orchid Island Capital pays out a high yield monthly dividend that amounts to nearly 18%. Why Orchid Island Capital Inc (ORC) Could Be A Buy - Yahoo Finance To report a factual error in this article, Orchid Island: Shuttering Mortgage Market Signals Potential Bearish Move, can partially hedge mortgage spread risks, continued purchases from the Federal Reserve. The stock trades at about $6.15 per share and has had a rough year. The div looks safe for the near term. When ORC was cratering, and the Fed started buying mortgages, ORC appeared to be the closest thing to a free lunch, and, indeed, the stock rose dramatically during Q.E. Book value can move around during the quarter from changes in rates and spreads and hedging. Why Shares of Orchid Island Capital Fell Today, Orchid Island Capital, Inc. (ORC) Q3 2020 Earnings Call Transcript, Orchid Island Capital Inc (ORC) Q1 2020 Earnings Call Transcript. PDF Orchid Island Capital, Inc. (ORC) - Sure Dividend The traditional pass-through Agency RMBS include mortgage pass through certificates and collateralized mortgage obligations. Is this happening to you frequently? Why Is Orchid Island Capital's Dividend So High? Orchid Island had to cut its dividend earlier this year. Not to mention higher demand for its specified pools as they are included in the Bloomberg MBS indices this year. 2.0 News and Social Media Coverage. If earnings go up next quarter yield will remain the same. Just four months later, Orchid Island Capital slashed its monthly dividend by more than 31%, from $0.08 per share to $0.055 per share. I have no business relationship with any company whose stock is mentioned in this article. Admittedly, it can be a complex business. For readers who are not familiar with the correlation coefficient, it is a number between -1 and 1. Orchid Island Capital Inc. - MarketWatch Its portfolio is mainly invested in RMBS and longer duration fixed income securities. Most mortgage REITs have some protection against this through interest rate hedges on long-term Treasuries, but there is no way to perfectly hedge against higher mortgage rates if mortgage rates rise faster than Treasury rates. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. To make the world smarter, happier, and richer. Of course, that model assumes no change in mortgage spreads, which can substantially impact ORC's book value since it has no hedges against mortgage spreads. FWIW Technicals suggest this could be close to a current low. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Follow me for comparison articles such as AAL vs. LUV or USB vs. C. Yet, they keep paying us. Orchid Island is a mortgage REIT, a fairly complex cousin of a traditional property-owning REIT. The company's largest shareholder is BlackRock, Inc., with ownership of 9.0% . On the surface, this company is very attractive to many investors. 772-231-1400. Net interest income dropped $13.6 million, while net portfolio losses fell $19.4 million. Monthly Dividend Stock In Focus: Orchid Island Capital Orchid Island Capital, Inc. is a Real Estate Investment Trust, or REIT, operating in the mortgage industry. However, I generally take the view that "if something looks too good to be true, it probably is not true, at least not entirely so." These 4 REITs Have Huge Dividend Yields - But Are They A Trap? Lenders that borrow in the short-term market and lend at long-term maturities see their net-interest margins collapse with the yield curve. According to the median forecast of eighteen voting members of the FOMC, there is one expected quarter-point rise in interest rates this year, followed by rate cuts after 2024. It is managed by Bimini Advisors, a subsidiary of Bimini Capital Management, which is a registered real estate investment trust, or REIT. However, as noted in the October 2020 report summary: Rising inflation factors could cause short-term rates to rise sooner than expected, possibly limiting Orchid Island Capital's profitability and asset value. The Motley Fool has no position in any of the stocks mentioned. The liquidation of a significant portion of TBV shrank its income generation capability. Add on the impending squeeze on net-interest margins due to rate hikes (most of ORC's borrowings are 30-90 day repurchase agreements), and ORC's prospects appear to be very bearish. From the end of 2021 until the end of 2022, the companys average shares outstanding grew by a staggering 54%. Why Shares of Annaly Capital Management, AGNC, and Orchid Island Problematically, its agency RMBS assets are subject to margin calls if they decline in value enough. So unless ORC publishes its most current book value, my $3.1 estimate is unlikely to be reported for some months. You should not buy Orchid Island stock without fully understanding the very complicated nature of the mortgage REIT model. 10 year treasury yield forecast (econforecasting.com). Some members have assumed that the Federal Reserve would raise its targeted interest rate to almost 6% in 2023. The fundamental reason is that the yield spread measures the risk premium investors are willing to pay for ORC relative to other assets such as BAA bonds. Orchid Island Capital Stock Forecast, Price & News (NYSE:ORC) - MarketBeat It is not a huge dividend but apparently quite consistent. Mainly focusing on Large-Caps and occasional story stock. Volatility profiles based on trailing-three-year calculations of the standard deviation of service investment returns. The company can also change the amount of leverage that they use. You can sign up for additional alert options at any time. When short-term borrowing rates are near zero and mortgage rates are around 3%, this strategy can easily result in 10-15%+ annual returns, usually paid out as dividends. In addition, the fear of a potential recession and reluctant lending of banks (which they suggested after their Q1 results) will likely keep treasury yields relatively high. The high-interest rates, 20-year high mortgage rates, and inverted yield curves had and still have negative effects on mREITs profit margin and net interest income. Since then, price has recovered by quite a bit and is close to the pre-pandemic level. According to a survey made in mid-February of 40 fixed-income strategists, benchmark 10-year Treasury notes are expected to bring an interest rate of 3.71%, 3.66%, and 3.40% over the next three, six, and twelve months respectively. Orchid Island Capital shareholders who own ORC stock before this date will receive Orchid Island Capital's next dividend payment of $0.1600 per share on 2023-07-27. Hard to resist 15% plus yield on a $5 stock. In my opinion, far too many investors in ORC and other mREITs are too focused on changes to dividends and not on changes to book value. The truth is, even with dividends reinvested, they habe been loosing you money for a long time 5+ years if i remember correctly. ORC likely has a substantially higher downside risk than Annaly between the two. I am not receiving compensation for it (other than from Seeking Alpha). In 2022, the company increases the duration of its security holdings and reduced its coupon rate, consequently improving its performance. Please disable your ad-blocker and refresh. Estimated return represents the projected annual return you might expect after purchasing shares in the company and holding them over the default time horizon of 5 years, based on the EPS growth rate that we have projected. Another way to gauge the margin of safety is to look at the yield spread between ORC and a high yield index, and here I use the Moody's Seasoned BAA Corporate Bond Yield. Not fully understanding what you own would have been a very costly mistake, particularly if you were trying to live off the income your portfolio generated. I am very new at this so I would like to know what others think. In terms of valuations, the stock is actually quite expensively valued, as revealed both by its price to tangible book value and yield spread. One twist is that they keep issuing shares using their ATM (at the market offering).
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