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Summary

  • Buy the stock within days after the ex-dividend date.
  • Orchid Island has a dip after every ex-dividend date, but there's a very small window.
  • Buy this stock and hold to take the dividend.
  • Take the cash for a nice income stock, or reinvest your dividends for growth.

Orchid Island Capital Inc (AMEX: ORC) went ex-dividend on August 22, 2014 and will pay the $0.18 dividend on August 29. I like Orchid Island Capital as a stock that pays a monthly dividend and yield near 15%. Regardless if you take the cash payout or reinvest the dividends, you are making a great investment. In many of my articles I talk about the right time to buy into a stock. Some analysts say just buy the stock, but I believe in the process of buy every investment on the dip. For a stock that pays a monthly dividend, when is the best time to buy the dip?

I will use the last 90 days and demonstrate the cycle (watch the chart below) for you as an investor to learn how to find the right buy-in point. Let's go back to May 2014 where Orchid Island went ex-dividend on May 22. On May 21, the high point for the stock was $12.98 and it closed at $12.90. The following day, the low price was $12.63 and it closed at $12.77. On May 23, the stock price began its climb up and never closed below $12.84. The stock rose to a high on June 20, of $13.25 and closed at $13.20, where the stock went ex-dividend the next Monday, June 23. The stock price dropped to a close on June 26 of $13.03, and began rising to July 23, toward the next ex-dividend date. The high was actually on July 22 at $14.00, but the stock closed on July 23 at $13.95. The low price two days later on July 25 was $13.51, and actually dropped again on July 31 to a low of $13.01. The stock climbed again to a high of $14.45 on August 20, and closed on August 21 at $14.36, the ex-dividend date before it opened the following day at $14.25.

90 days stock price of Orchid Island Capital (the red lines highlight the ex-dividend dates and the drop following that date)

I describe this cycle because you want to invest in this stock just after the ex-dividend date when the stock price is at its lowest. As an investor, you could sell just prior to the ex-dividend date to try to gain more than the $0.18 dividend it is paying, or just take the dividend. Our recommendation is to continue to grow this stock in your portfolio by buying more shares every time just after the ex-dividend date. This stock is very difficult to judge if it will drop more than the $0.18 dividend, and to buy and sell could eat into the profit you could earn through the dividend.

To buy and sell stocks by using the ex-dividend date for profit, it is best if you use a stock paying a quarterly dividend that the drop after the ex-dividend date is more than the dividend the stock pays. Attempting to do this with a monthly paying stock becomes very challenging, even for the best research investors.

Once you own the stock, I recommend you hold and grow. Take the cash and build a monthly residual income, or reinvest your dividends every month to grow your position at 15% return plus the compounding effect. Over time, you will build a profitable position.

Orchid Island, like many other REITs and companies in the finance markets, will experience the effects when interest rates go up. After the initial financial adjustment, companies will be able to create a larger spread and profits will increase. It will be better to grow your position now, ride the bump for a few months during the interest rate increase, and hold for a much more profitable return in the future.

Source: The Right Time To Buy Orchid Island Capital