When interest rates went down, and book values went up, originally investors thought it was good and increased the prices for reits. Then when it sunk in that the lower spreads would hurt the dividend, people sold off reits, dropping the price. I expect the opposite to occur when interest rates rise... an initial sell off due to the lower book values and then a move to the upside as the market realizes the higher spreads will mean higher dividends. Buy after the drop when interest rate fears arise.
There could be huge moves in the mreit sector, both up and down, based upon the dividend announcements and current profitability which is unknown at this time. Give rates are up, book value is probably down a bit. Given the uncertainty I think the big boys will knock this sector down further than it should go. There could be some great buys, or horrible buys right about now. I think now is a very risky time to be in reits, not so much on fundamentals, but because of the great uncertainty. The market hates uncertainty.
I was lucky. I bought JPMPRA at $25.52 before the ex-date. I picked up the $.34 dividend and watched the price immediately go up nicely. I also picked up WFCPRN at $25.52 and watched it promptly rise to $26.18 and it will be kicking off a $.325 dividend in about two weeks. On GSPRI I bought at $25.85 and will lose $.85 if it is redeemed, but I'm up $.28 so far this month. I do thank you for reminding me to keep the impact of the stock being called in mind. I have read where people buy trusts that are only going to last another year or two and pay prices that will not even provide for a return of their capital, but they just see the big yield and buy without thinking (or maybe understanding). Thanks again for helping other posters with very accurate and needed information.
Currently 18% of my preferred is in reits. However, I plan to sell the reit preferred stock first, as needed for monthly income, and so that percent should go down each month. And so if reits are ok for the next two years then I am ok... and safer as time goes by.
Two months ago it was at 2.0%. It is with JP Morgan. It dropped from .5% (three month performance) to .4%. :( That 2.85% would indeed be a huge increase for me. It is too bad I can't get it.
The Stable Value fund which is in a 401k used to pay out around a 5.5% yield. It is down to 1.6% now. PFF and JPC are good preferred funds and I have owned them both. It just seems that going with the big banks I mentioned would have very little default risk and really big price swings would be unusual. I don't see rising rates as a problem for right now. It is really terrible having to go out on the risk curve. I see this ending badly for many retired people who may take too much risk and that is what scares me.. Thanks for your thoughts. Any other options you can recommend?
There seems to be quite a few knowledgeable investors here on this site and I would like to ask for your opinion of my recent moves. My Stable Value fund reduced its dividend which cut my income from that source by about $5,000/ year. To compensate, I bought $150,000 of the preferred stocks of WFCPRN (Wells Fargo), GSPRI (Goldman Sachs), JPMPRA (JP Morgan), AGNCP, and NLYPRC which in total they average a yield of a little less than 6%, which is about 4% higher than the Stable value Fund was paying. I am now back to my regular earnings, actually a bit higher, but how much risk have I taken? It seems that before the major banks/brokers stop paying on their preferred stock that we would have to have another utter financial melt down. Am I missing something? It does not feel that risky to pick up "free money." This seems too easy.
I think we will see a summer swoon in the broader market and PSEC will go down with the rest of the market. Pretty much the same as the last three years with a spring slow down in the economy. I think you can stll make money with PSEC by buying a week or a little longer before the ex-dates and selling a day or two before ex-date. It has been working for me. I went from 9,500 shares down to just 400 now. So far this year I made $5k on the run up (plus dividends) and lost $2k before bailing almost completely out. I'm real glad I sold most shares around $11.25ish. I'll keep the 400 shares as it is in an IRA with high trading costs and longer term should be fine. There just doesn't seem to be anywhere to park money to earn some income. I will buy back PSEC after the earnings report and summer correction... if it occurs. Who knows, but I just don't like the way the market is behaving, just like the past few years.
I think that now that the volatility has started that this is a signal that the market is changing direction. In recent years the market typically has given back most, if not all, of the Q1 gains over the summer months. This correction is a bit early, but it may just be a bump in the road for now with a bigger pull back to come later. I'll sit on the sidelines.
I think we will see a summer swoon and much lower prices across the board. The pattern we have seen over the last few years has been to go up over 10% to start the year, lose most or all of the gain over the summer, and to go back up towards year end. I dumped almost all of my PSEC and am mainly in cash. I do have 4,000 shares of ARR with a cost basis of $6.35. Typically reits are not very correlated to the general market, but as today shows, they do move with the general market to some degree. I think putting some dry powder away will offer some real good opportunities in a few months, especially the BDC's which will fall hardest if I am correct and we get the same pattern. GLTY.
A word of caution to you. The periods you have been using, typically the last 3 or 4 years, has been a great time for stock investors. Obviously, the historical win %'s are very high given the periods you're using. Going foward that is much less likely. The stocks that channel up going into ex will be losers as well when the over all direction of the market is down. I realize you try to minimize the losses, but you need to qualify what those "historical" percentages are based upon.
Well, I am now mostly out and will not be buying back until the typical summer swoon occurs. Sell in May has historically been a pretty good strategy. I may buy on any large dips, like if the earnings announcement is as projected but the market over reacts to the less than dividend covering news. Good luck to those holding steady, it is probably the right thing, but all the chatter has talked me out of the market.
Do you know which party reduced taxes that resulted in much fewer tax payers? Does Bush tax cuts ring a bell? Which party is still trying to reduce taxes further? Really, think about it. Were the democrats FOR tax cuts? No mean feelings, I just have never understood how this situation is blamed on democrats. If you could explain that to me logically I would be glad to listen.
TICC isn't covering their dividend right now and so even at this low price there is still more downside possible. I bought some after the SPO and sold it once it went back up. I may buy a little if it drops much more, around $9.00 to $9.10 would be my signal to get in. GLTY.
Doc, I am puzzled about something and would welcome your thoughts on the following matter.
ARR had a book value of $7.29 on 12/31/12, announced an estimated book value of ~$6.73 in February, and it trading at $6.50 or 89% of year end book value.
AGNC had a book value of $31.64 on 12/31/12, probably saw a decrease in book value along with other reits due to slightly higher MBS interest rates in Q1 '13, and is trading at $32.60 or 103% of year end book value.
Either ARR is way under valued or AGNC is way over valued. AGNC could not have hedged enough to make up for the gap of 14% betstocks since 12/31.
I think ARR is slightly under valued and AGNC is being over valued at the current book value which hasn't been announced. TIA.
PSEC usually drops after ex-date and keeps going down for a while. It then goes up in the second half of the month. It is a good stock to swing trade. I am holding 5,200 shares and have never liked the dips it seems to take every month.
The run up to the dividend didn't occur for PSEC. I think the ATM sales by PSEC put a lid on the price. Let's hope they let it recover quickly after ex before continuing their ATM sales.