Get Paid Monthly by Orchid Island Capital
After taking a beating during the Federal Reserve’s high-interest-rate cycle, real estate investment trusts (REITs) have been performing well. This has been happening since the central bank hinted that it was going to start taking interest rates lower in November 2023.
Interest rates haven’t come down very quickly, but are still expected to trend lower in 2025 and 2026.
Why is this good?
Well, REITs need to borrow a lot of money to expand their portfolios, and higher borrowing costs can cut into profitability.
Moreover, the current interest rate environment means that mortgage REITs (mREITs) are able to borrow capital at far lower interest rates than what the mortgages are actually paying. This should allow mREITs, like Orchid Island Capital Inc (NYSE:ORC), to buy more debt for the same price or even less than they could in a high-interest-rate environment, which could eventually lead them to increase their monthly dividends.
Orchid Island Capital is an mREIT that invests in residential mortgage-backed securities (RMBSs) on a leveraged basis. The income Orchid Island stock generates for distribution to its shareholders comes from the difference between the yield on its mortgage assets and the costs of borrowing. (Source: “Q4 2024 Earnings Presentation,” Orchid Island Capital Inc, January 30, 2025.)
The company’s portfolio is made up entirely of highly liquid agency fixed-rate pass-through securities, interest-only securities, and principal-only securities.
Swings to 2024 Profitability of $37.8 Million
For the fourth quarter ended December 31, 2024, Orchid Island’s net income of $5.6 million, or $0.07 per share. This was made up of net interest income of $8.1 million, or $0.10 per share, total expenses of $4.4 million, or $0.05 per share, and net realized and unrealized gains of $1.8 million, or $0.05 per share. (Source: “Orchid Island Capital Announced Fourth Quarter Results,” Orchid Island Capital Inc, January 30, 2025.)
The yield on Orchid Island’s average agency RMBS went down from 5.43% in the third quarter of 2024 to 5.38% for the fourth quarter of 2024. The mREIT ended the quarter in a strong liquidity position, with $353.6 million in cash and cash equivalents.
For full year 2024, Orchid reported net income of $37.8 million, or $0.57 per share, a big improvement over a 2023 net income loss of $39.2 million, or $0.89 per share. The mREIT’s 2024 earnings consisted of net interest income of $5.3 million, or $0.08 per share, total expenses of $16.7 million, or $0.26 per share, and net realized and unrealized gains of $49.1 million, or $0.26 per share.
Maintains Monthly Dividend of $0.12/Share
As an mREIT, Orchid Island Capital legally has to distribute at least 90% of its taxable income to shareholders in the form of a dividend. In the fourth quarter, it paid a dividend of $0.36 per share, or $0.12 per share on a monthly basis. This works out to an annual distribution of $1.44 per share, or $16.38 on an annual basis. (Source: “Dividend History,” Orchid Island Capital Inc, last accessed February 26, 2025.)
Orchid Island Stock Hits New 52-Week High of $9.01/Share
The following chart goes to show just how much impact the Federal Reserve can have on mREITs. In November 2023, the Fed said it was done cutting interest rates; in December 2023, it stated it would begin slashing rates. The central bank has cut interest rates three times since September 2024.
Since the start of November 2023, Orchid Island stock has returned total profits of 75%. That’s adjusted for reinvested dividends. If a shareholder took the monthly dividends in cash, that return would fall to 40%.
Orchid Island stock continues to well over the near term as well, having hit a new 52-week high of $9.01 on February 21. It continues to hover near that level.
As of February 25, Orchid Island stock stock is up:
- 13.2% over the last month
- 15.5% year to date
- 23.7% year over year
Over the same time frame, the S&P 500:
- Went down 1.7% over the last month
- Rose 2.0% year to date
- Went up 18.3% year over year
Chart courtesy of StockCharts.com
The Lowdown on Orchid Island Stock
Orchid Island Capital Inc is an mREIT with a growing portfolio of RMBSs. In the fourth quarter, the company increased its agency RMBS portfolio to $5.3 billion, with interest income on the portfolio up approximately $4.4 million from the third quarter of 2024.
While interest rate cuts from the Fed are having the desired effect on inflation, it doesn’t mean that the cuts will happen as quickly as some would like them to. This includes President Donald Trump and his very pro-growth agenda. In fact, Trump has pushed for lower interest rates since entering office.
With that said, Orchid Island’s agency securities are generally fixed-rate 30-year and 15-year securities. Its hedges, meanwhile, have a longer duration bias, which protects the portfolio against an unanticipated rise in longer-term rates.
On the plus side, lower interest rates are still good for Orchid Island, because it can borrow money at much better terms. All of this bodes well for Orchid Island stock and its monthly dividend.
It’s also good news for the 157 institutions that hold a 30.4% stake in outstanding ORC shares. The three biggest holders of Orchid Island stock are BlackRock Inc, Vanguard Group Inc, and Invesco Ltd. (Source: “Orchid Island Capital, Inc. (ORC),” Yahoo! Finance, last accessed February 26, 2025.)