Bashing Big Yielders

Core Viewpoint - Orchid Island Capital (ORC) is highlighted as an agency mortgage REIT with a history of poor performance and declining dividend yields, raising concerns about its investment viability [2][8]. Group 1: Historical Performance - ORC initially traded at a premium to book value but faced significant declines after critical analysis revealed its unusual hedging strategies and poor management performance [3][4]. - The REIT has produced negative total returns since inception, indicating a failure to generate sufficient cash flow to meet dividend obligations and management costs [9][10]. Group 2: Investment Strategy - Investors are advised to consider preferred shares and baby bonds as alternatives to common shares, as they typically offer better total returns with lower volatility [7][14]. - The focus on dividends alone has proven to be a losing strategy, as evidenced by ORC's performance, which suggests that a more comprehensive evaluation of the underlying asset value is necessary [5][6]. Group 3: Market Dynamics - The price-to-book ratio serves as a critical indicator for assessing REIT investments; a high ratio often precedes declines in share price, while a low ratio may signal a good entry point [5][12]. - ORC's attempts to maintain a high dividend yield require unsustainable returns on equity, which historically have not been achieved due to management's inadequate trading of mortgage-backed securities (MBS) [8][9].