• filter:
  • Text Only
  • Search this Topic »
rated:
Looking4morecents said:   
RagingBull said:   any good long term plays
  I make monthly purchases of PM, O, ORC, and CVX.

  Why is it that dividend stocks tend to drop if interest rates go up?  I realize higher interest rate than dividend or at least really close to it may have some appeal to savers.  But why is ORC dropping when it has a seemingly great dividend and interest rates are pale in comparison?

rated:
FWjunkie2 said:   
Looking4morecents said:   
RagingBull said:   any good long term plays
  I make monthly purchases of PM, O, ORC, and CVX.

  Why is it that dividend stocks tend to drop if interest rates go up?  I realize higher interest rate than dividend or at least really close to it may have some appeal to savers.  But why is ORC dropping when it has a seemingly great dividend and interest rates are pale in comparison?

  It's not  a simple comparison of one rate being higher than the other.  If it's felt that the risk with the stock requires for example 4% more than the CD and CDs were at 0%...  that supports a price that works out to a 4% dividend on the stock.  But if CDs go up to 1% interest and if the risk is still deemed to require 4% extra return to offset it, then the stock price should theoretically drop about 20% so that the dividend is brought up to 5% -- Or, the same 4% risk premium.

Adding to the above, if investors feel that rates are going to trend up and thus continue to drive down the stock price, then they may all rush to be first to the "exit" which could drive the price down early.

rated:
Bend3r said:   
FWjunkie2 said:   
Looking4morecents said:   
RagingBull said:   any good long term plays
  I make monthly purchases of PM, O, ORC, and CVX.

  Why is it that dividend stocks tend to drop if interest rates go up?  I realize higher interest rate than dividend or at least really close to it may have some appeal to savers.  But why is ORC dropping when it has a seemingly great dividend and interest rates are pale in comparison?

  It's not  a simple comparison of one rate being higher than the other.  If it's felt that the risk with the stock requires for example 4% more than the CD and CDs were at 0%...  that supports a price that works out to a 4% dividend on the stock.  But if CDs go up to 1% interest and if the risk is still deemed to require 4% extra return to offset it, then the stock price should theoretically drop about 20% so that the dividend is brought up to 5% -- Or, the same 4% risk premium.

Adding to the above, if investors feel that rates are going to trend up and thus continue to drive down the stock price, then they may all rush to be first to the "exit" which could drive the price down early.

  Thanks for the explanation in terms of risks of stocks.  It makes sense.  But ORC is paying 16% dividend... Is ORC's dividend at greater risk of failing when interest rates climb?

rated:
FWjunkie2 said:   
But ORC is paying 16% dividend... Is ORC's dividend at greater risk of failing when interest rates climb?

 

  
From Yahoo Finance:  "Orchid Island Capital, Inc., a specialty finance company, invests in residential mortgage-backed securities (RMBS) in the United States. The company’s RMBS are backed primarily by single-family residential mortgage loans, referred as Agency RMBS. Its portfolio consists of traditional pass-through Agency RMBS; and structured Agency RMBS, such as collateralized mortgage obligations, interest only securities, inverse interest only securities, and principal only and other types of structured Agency RMBS. The company has elected to be taxed as a real estate investment trust for federal income tax purposes. Orchid Island Capital, Inc. was founded in 2010 and is headquartered in Vero Beach, Florida."

1. They are using all sorts of interest rate related tricks to achieve their profits.  If / when interest rates go up, there is a significant chance that they will be in a much tougher spot to make their money.  This may lead to drops in their dividend yield.  I suspect some of what they are doing is borrowing at low short term rates and essentially lending at higher long term rates.  This will perhaps become more difficult to do as short term rates eventually rise.  We've been in a decades long drop in interest rates. Take a look at this using a date range from 1991 to 2015.  http://www.treasury.gov/resource-center/data-chart-center/intere...  This is likely to change some day.  (We've been saying that for a long time and we may be saying for a short time or long time into the future)

2.  If it sounds too good to be true (16% yield in a near-zero percent interest environment), it probably is. 

Looking4morecents wrote that (s)he's been buying in monthly to ORC.  That's worked out fairly well for the past few years.  If he/she has a very long term outlook, that may work out well in the future -- could be buying low cost shares for the next several years and then reap the benefit many years in the future.  It's also possible Orchid won't make it through a rise in interest rates, in that case all is lost.  One of  Looking4morecents' other monthly buys, CVX Chevron, is much more likely to survive a rise in interest rates.  

The above is my $0.02 worth of entertaining thoughts and is not investment advice.  

rated:
not a fan of ORC, but you can start a little DD here:

http://files.shareholder.com/downloads/AMDA-1NSHHA/0x0x654061/59...

rated:
I don't own ORC any more.  I'll likely stay out.  But I'm even concerned about the big cap dividend stocks during an upward move in interest rates.  I sold a lot last week.  I'm about 40% cash now.  
 

rated:
mrpresidentusa said:   I don't own ORC any more.  I'll likely stay out.  But I'm even concerned about the big cap dividend stocks during an upward move in interest rates.  I sold a lot last week.  I'm about 40% cash now.  
  ORC is down to $12.80 today. 
Update:  Whoa. Dropped to about $12.51/sh... I bought some at $12.60 on the way back up now.  over 17% yield and next ex-dividend date is July 20th.  I think ORC will climb upward as we closer to that dividend.  I'm in for short term... very short term.

rated:
ORC joins the Russell 2000 Index on June 26th.

rated:
anybody like AEP long (or even short) at this level?

rated:
Looking4morecents said:   ORC joins the Russell 2000 Index on June 26th.
  I like this Russell fact as a catalyst.  ORC has bounced nicely right off the buy signal and over $13sh today.  Helps make up for my dismal GMZ (cursed oil MLP). 
But ORC paying 17% dividend and GMZ over 8%.... 

rated:
solarUS said:   anybody like AEP long (or even short) at this level?
  AEP buy signal history is not very reliable.  That being said, it looks like the buy signal would be closer to $51/sh.  The whole utility sector is in a falling pattern (XLU) because of anticipated interest rate rise.  They are almost like bonds: when rates go up, the bond value goes down.

rated:
FWjunkie2 said:   
solarUS said:   anybody like AEP long (or even short) at this level?
  AEP buy signal history is not very reliable.  That being said, it looks like the buy signal would be closer to $51/sh.  The whole utility sector is in a falling pattern (XLU) because of anticipated interest rate rise.  They are almost like bonds: when rates go up, the bond value goes down.

hmm. i would have anticipated more sensitivity to fuel (esp NG) prices than to fed rate hike anticipation...but looking at the charts, you're right it tracks much more like bonds.

rated:
link
article about rising interest rate and the effect on higher dividend stocks.

rated:
wow hcp is low and ewm what do you think

rated:
Raging -- I am NOT any kind of stock analyst, so take this with a grain of salt. The health care REITs (like HCP, HCN, OHI, SNH, VTR) all look good compared to their peaks this past year. I think they could still get hammered more as fears of interest rates rising compound. I think the fear of rising rates will be greater than the actual financial impact of the rising rates (based on nothing but my own thoughts).

When will the best buying opportunity be? I certainly don't know. I've been very slowly easing into the HC REITs and will continue to do so with a small portion of my portfolio over the course of the next year or so. I have started this process with a few of the REITs listed above and will expand to the full group I listed plus perhaps some others in a portfolio I am building for long term income.

rated:
ORC (and I have quite a lot of it, purchased at higher than it is now), trades at a premium to book value.  Most mREIT's trade at a discount, regardless of div.  I think you're just seeing ORC retreat back in line with it's peers.  The parent company Bimini trades at a discount. 

rated:
debentureboy said:    I think the fear of rising rates will be greater than the actual financial impact of the rising rates (based on nothing but my own thoughts)
  
Totally agree with this.  Way long VTR.  The company will be fine with raising rates.  The stock...ehh, not so much.

rated:
There has been a few breakdowns through support levels on several stocks with "buy signal" that had worked consistently in the past two years. This is a bad omen. There is not enough money coming in at typical support levels to turn the stock price direction back up for any sustained upward move. This is particularly happening with high dividend paying stocks (ex ORC, GMZ, REITs, utilities, etc. )

I sold a lot of my stocks last couple days and a lot more today. I have over 50% in cash now and plan to sell more. When the crowd gets up to exit there is going to be large moves to the downside.

rated:
So much for ORC joining the Russell 2000. Dropped to about $12.11/sh! Next support is about $11.70/sh. I'll be happy to break even.

rated:
debentureboy said:   Raging -- I am NOT any kind of stock analyst, so take this with a grain of salt. The health care REITs (like HCP, HCN, OHI, SNH, VTR) all look good compared to their peaks this past year. I think they could still get hammered more as fears of interest rates rising compound. I think the fear of rising rates will be greater than the actual financial impact of the rising rates (based on nothing but my own thoughts).

When will the best buying opportunity be? I certainly don't know. I've been very slowly easing into the HC REITs and will continue to do so with a small portion of my portfolio over the course of the next year or so. I have started this process with a few of the REITs listed above and will expand to the full group I listed plus perhaps some others in a portfolio I am building for long term income.

  I looked at VTR.  It is right at the latest support level and has registered three buy signals very recently.  But the previous recent buy signals have broken below each corresponding support level and I have fearful it may do so again.  The next support would be about $58.50/sh.  I'm avoiding high paying dividend stocks and wish I had avoided ORC and GMZ as well.

rated:
FWjunkie2 said:   So much for ORC joining the Russell 2000. Dropped to about $12.11/sh! Next support is about $11.70/sh. I'll be happy to break even.
  I was surprised by the drop.  Volume was 5.4 times an average day.  As long as the dividend holds I'm ok with a drop, I'm still buying small amounts monthly.

rated:
ORC has dividends?

rated:
RagingBull said:   ORC has dividends?
  A bit monthly.
http://finance.yahoo.com/q/hp?s=ORC&a=01&b=14&c=2013&d=05&e=27&f...

rated:
Here are some updates from my stock trading subscriptions:

One subscription stock trading site just sent an email that for the first time in 3 years they have seen many stocks breakdown through previous support levels with buy signals which were previously very reliable in past years. Large and small cap, dividend and non-dividend stocks. They are postponing all announcements of any buy signal stock trades to wait for the start of next quarter EPS announcements (AA starts it off on 7/8/15) to see the market response. They recommend more than 50% be in cash and sell into any gains. (They were already 40% cash going into the summer.)

One subscriptions market watch subscription is expecting a >1000 point drop in DJIA. They cite interest rates already rising in mortgages and bonds, high paying dividend stocks have dropped in anticipation of higher interest rates (REITs, utilities, leveraged financials, etc.), China staock market has dropped about 19% since end of April, US stocks PE at high range historically, Shiller PE Ratio at market high levels historically, higher wages being announced in the news lately portends inflation and also more reason to rate FED rate, higher interest rate in bank savings accounts starting (1.5% at HSBC), and they didn't even cite Greece as a factor.

rated:
so why not short?

rated:
FWjunkie2 said:   Here are some updates from my stock trading subscriptions:

One subscription stock trading site just sent an email that for the first time in 3 years they have seen many stocks breakdown through previous support levels with buy signals which were previously very reliable in past years. Large and small cap, dividend and non-dividend stocks. They are postponing all announcements of any buy signal stock trades to wait for the start of next quarter EPS announcements (AA starts it off on 7/8/15) to see the market response. They recommend more than 50% be in cash and sell into any gains. (They were already 40% cash going into the summer.)

One subscriptions market watch subscription is expecting a >1000 point drop in DJIA. They cite interest rates already rising in mortgages and bonds, high paying dividend stocks have dropped in anticipation of higher interest rates (REITs, utilities, leveraged financials, etc.), China staock market has dropped about 19% since end of April, US stocks PE at high range historically, Shiller PE Ratio at market high levels historically, higher wages being announced in the news lately portends inflation and also more reason to rate FED rate, higher interest rate in bank savings accounts starting (1.5% at HSBC), and they didn't even cite Greece as a factor.

  Thanks for the info.  I've been sidelining new money in our 401ks.  Non-retirement money goes mostly into dividend stocks as soon as I get it (I think of it as an immediate annuity).

rated:
umcsom said:   so why not short?
  Limited upside. Unlimited downside.

rated:
Sunday, 6/28/15, about 3:00PM EST, premarket futures of DJIA and SPY500 is down about 1.5% as I write this. Monday will be interesting.

Update: Shanghai index is down about 3.75%!!  Nikkei is down about 450 points or about 2.2%!!

rated:
I sold my ORC and GMZ for losses.

rated:
why sell so quick? Why not just hold until it recoverS?

rated:
What guarantees that something will ever go back up?

rated:
RagingBull said:   why sell so quick? Why not just hold until it recoverS?
  The economy is turning against high paying dividend stocks with leverage. See link in earlier post for the phenom. 
I've been selling into any rally.  I'm over 60% in cash now. I'm not buying on any pull back at least until AA kicks off the new quarter EPS on 7/8/15. 

rated:
BP looking good under 40$

  • Quick Reply:  Have something quick to contribute? Just reply below and you're done! hide Quick Reply
     
    Click here for full-featured reply.


Disclaimer: By providing links to other sites, FatWallet.com does not guarantee, approve or endorse the information or products available at these sites, nor does a link indicate any association with or endorsement by the linked site to FatWallet.com.

Thanks for visiting FatWallet.com. Join for free to remove this ad.

TRUSTe online privacy certification

While FatWallet makes every effort to post correct information, offers are subject to change without notice.
Some exclusions may apply based upon merchant policies.
© 1999-2015