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Dividend Living
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Ive been investing in stocks and mutual funds since 2005 on a personal level. I occasionally read books on investing. I am focused on Mortgage REITs analysis.
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  • Robinhood Trading App Review

    I started trading on the robinhood trading app for iphone in June (it came out for android today (8/13/15)) and wanted to give a review of my experience. The reason for starting an account was to be able to trade for free of course. This opens up a world of possibilities in being able to take a very small position on a stock and being able to diversify quickly without much initial money. You can also average in more often on the stocks you are accumulating. Small time investors like myself are finally able to build a diversified portfolio quickly.

    The App Performance

    The trading on the app is incredibly easy and fast. The front graph and account balance on the home page are useful and reflects the total return of the account. Each stock can be clicked on for a more detailed examination of your return on that stock. You can toggle easily on the front list page between daily % return, stock price, and holding value of each stock.

    The app gives you a monthly statement that has been accurate so far. You can download it in PDF format and email it to yourself to save it on your home computer and see it on a bigger screen. The inquiries I have made through their email support system have been responded to promptly.

    Hickups and downsides

    There have been a few issues so far. My first two dividends were what I would consider late. The first was paid at the market close the day AFTER the pay date. The second was paid 2 days after the pay date during market hours after I submitted an inquiry regarding the late dividend. This lit a fire and they immediately paid it to me. Since then, my next dividend was paid ON the pay date likely after market close (which is better than my 2am payments from tradeking on the day after the pay date). I dont know the reason for the issues paying dividends, but I hope it doesn't have to do with how vocal you are about getting them paid on time, or how much money is in your account. It should be a set system that pays everyone ASAP regardless. They also don't send you an email detailing a dividend payment. You just have to wait for the monthly statement or keep track of how your cash amount changes to see the dividends paid.

    Another issue was their rule to not allow market orders on stocks at market open that have changed 5% from last market close. This delayed a few trades of mine for about an hour as I waited for their app to realize the market had been open for a while. I realized later that a limit order would have rectified this, which robinhood allows.

    You can't DRIP on robinhood. You can't short stocks. You can't use margin. You can't buy partial shares. Your inquiries need to be emailed in as they are trying to avoid having phone support personnel. I know they are working on having some of these features in the future, which will make robinhood even more attractive.

    My biggest fear is they find themselves unprofitable and have to start charging for trades or decide to sell the company to a brokerage that charges for trades. This would make trading out of my very small positions costly. I hope the cash volume in their many accounts and the margin accounts they eventually will set up will lead to profitability. Now they seem to be running on venture capital from the likes of google and snoop dog. I decided to start small and build slowly to see how the business fares after a few years before changing over all my investing money to their platform.

    Final thoughts

    Not being able to DRIP is not really a huge issue as you can use your dividends to buy additional shares for free, you just have to have enough $ to buy an entire share, which in the case of stocks more the 100$ a share could be a while.

    I have noticed that the ability to buy 1 share of a company with no trading costs has led me to investigate the company less than I would otherwise, but that makes sense to me as a 10% drop would only put me back a few bucks. I can buy all the stocks I'm interested in without having to buy $1000 of each to make the trade worth it to me. I have also averaged in more on stocks, making market timing less of an issue.

    I have yet to see how they run their tax forms, but with APEX clearing as their clearing company, I'm expecting similar results to my tradeking account as they both run on the same clearing firm.

    Having free trading is awesome. You can do things like buy a share each month, each week, or even each day. You can instantly get out of positions without cost (they do have the usual SEC and FINRA fees for selling, which is pennies unless you are selling large volumes) . On every stock you buy your cost basis is lower. The benefits to the small guy are endless.

    Aug 13 1:29 PM | Link | 1 Comment
  • MREITs In 2015. Stay The Course Or Bow Out?

    I have held a substantial amount of mortgage REITs since 2012. Its been a roller coaster for sure. If I could have predicted 2013's massive drop in book value, I would have bowed out. 2014 was good to me and made up for the losses of 2013 so that my mREITs are mostly in the positive category on total returns.

    My current thesis is that staying the course on mREITs for the long term and reinvesting the dividends somewhere more stable is a good strategy to jump start compounded returns. I take my dividends from MORL, WMC, and MTGE and put them in things like Realty Income (NYSE:O), OHI, HCP, and NYMT (arguably a mortgage REIT, but a much more stable one), all of which I have on a DRIP plan. These stocks have stable or rising dividends and are somewhat less rate sensitive than agency mREITs.

    2015 has me a little worried. As you can see from the discount to book value that most mREITs are trading at, I'm not the only one. Q4 2014 earnings reports should show a gain in book value for the majority of mREITs. That will be a nice boost right as the worry about the end of ZIRP and the raising of short term interest rates starts to get more serious and hurt mREIT outlooks.

    The fear is that short term rates will rise and increase borrowing costs. There is also the fear long term rates will stay the same or go down and the spread mREITs use to earn money will shrink. Another fear is rising long term rates, which will help spreads, but the book value drop will overshadow the spread increases if the rise is fast. If the mREITs aren't hedged right for these scenario's they will report book value losses and/or dividend cuts.

    What we need is for short term rates to rise just a little bit when ZIRP ends and to stay at that slightly higher level for a long time. ZIRP sticking around would be good too, but the FED seems determined. Then we need long term rates to stay stable or rise very slowly. In that scenario, mREITs will do well. I think the FED has this scenario as the plan for 2015.

    Inverted yield curves are not something I want to see in mREITs. If short term rates rise and long term rates continue downward, that can happen, but I think the FED will do a lot to stop that from occurring.

    As I have read articles from authors and comments from readers on Seeking Alpha, there are a lot of opinions out there as to what rates will do. Some predict the best scenario (outline above) for 2015, others predict the worst (yield curve inversions or jumping long term and short term rates). What actually will happen usually lies somewhere in between. If you have a long term plan to capture dividend income from mREITs and invest in more stable dividend growth investments; and you believe that over the long term, mREITs will pay you back in dividends everything you initially put into them (as NLY has done), it makes a lot of sense to continue to collect the dividend and use them as you like. Trading in and out of mREITs on each new fear and each rebound was a bad action plan in 2012 for me, and I decided on my current course. It was tough to stay the course in 2013 as I saw massive book value losses and cut dividends. 2014 was a great year for this plan, and the best I hope for is that 2015 will be somewhere in the middle.

    I will keep a close eye on conference calls for Q4 2014 earnings reports to see mREIT management's outlook on rates, and how they are positioning their portfolio based on that outlook. I will also keep a close eye on rate movements.

    The outlook for 2015 may appear volatile, but I think it will be calmer than many predict. I have seriously considered altering my holdings to protect against volatility in 2015, but as of now, no changes to report. If I do change anything, it will be to lessen my weightings of mREITs and increase my weightings of less worrisome stocks like Realty Income and maybe even PG and JNJ. That will hurt my dividend income, but it could save my principal. I've been doing that slowly already through re-investing mREIT dividends into safer stocks.

    Possible triggers to change my weightings:

    • FED signaling a continuously rising short term borrowing rate despite the fact that long term rates are lowering. (If its a one time rise in short term rates and the FED holds it there, that is expected and not a trigger.)
    • Management at mREITs indicating that they need to increase their hedges to the point that it may affect the stability of the dividend.
    • A continuously lowering long term rate and a continuously rising short term rate. If the 2-10 year spread approaches 1.0, its time to seriously consider a change, as mREITs will seriously be considering a dividend cut.
    • Unsafe leverage used by mREITs to maintain the dividend if spreads shrink. Were talking 9x leverage or more.
    • Repurchase agreements going south (banks asking for collateral, calling their loans, ect.)
    • Rates jumping considerably and not reversing their course within a month.
    Jan 04 12:29 AM | Link | Comment!
  • MREITs Turning Around

    The taper starting has been a great thing for mREITs as no one predicted that I know of. Long term rates are lowering and now stabilizing in the 2.75% range for the 10 year treasury. mREITs are recovering their price to book value as the rates stabilize and people start to come back into this beaten up sector. My investments finally are in the black after being in the red ever since the May and June carnage of last year. The dividends over time have made up my losses in stock price and I have made some good picks in NRF, NYMT, WMC, and NCT that have helped my principal invested recover. Even MORL is only down 6.6% in total returns for me and that can be made up in a good week or from 4-5 months of dividends. So far so good in 2014. The only thing Im concerned with are rates rising too fast or short term rates going up, but that will always be a concern for mREITs and it doesn't seem either of those scenarios will materialize in the near term.

    Near term concern is WMC's book value taking out the recent gains. The BV is probably below 15$ while the stock is at 16.35$ and well above its peers in price to book value.

    Im thinking of trying to stabilize my portfolio without dropping my dividend yield too much by going more into NYMT, which has shown remarkable price stability in the last 5 years and has the 4th highest dividend of the bunch (WMC, ORC and CYS are higher) , without any recent dividend cuts as most mREITs have done.

    Seems most of February has been rising stock price days in mREITs even on days rates aren't dropping. Just the recovery the sector deserves I think, they usually don't trade at Decembers low price to book value. The end of the year selling and the taper fears were just a perfect storm of worry that seems to have passed. For all who stayed long through this downturn, I hope you are getting back in the black as well and your long term dividend returns will trump this recent setback. Dividends may finally have stabilized as well and if that is true, it will bring more people back to this sector as management probably knows.

    Disclosure: I am long NYMT, MORL, NRF, NCT, WMC.

    Tags: WMC, NCT, NRF
    Feb 18 10:12 PM | Link | 18 Comments
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