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ARMOUR Residential (ARR -2.1%) gets hit with a huge sell order (check out the volume here)....
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Tuesday, July 31, 2012, 12:27 PM ETARMOUR Residential (ARR -2.1%) gets hit with a huge sell order (check out the volume here). Fresh off a July 9 secondary (it's 3rd in 8 months!), the stock has flown right past that decline to new 52-week highs. Look for another "huge" secondary, says Dividend Master, estimating the stock trades at a 14% premium to book value. Shares +9% YTD with a 15.6% annualized dividend.
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Beyond that I would make sure to have a stop at 5% lower than the buy in. That may be a little conservative for some people but I'd rather not lose more than 5% on something that I consider risky (given it's short history and market sector). That said it is also my top performer for the year so far.
There is no good or bad price to get in when the market is climbing in an election year. If one is satisfied with the yield at 15.67%, now is the time. Waiting for a market crash in an election year is an unlikely scenario, and receiving the monthly distributions will likely cover an price drop. At today's closing price, a year's worth of distributions would still make a break even price of 7.66-1.20=6.46. Hopefully that answers your when to buy question. Do even better if you reinvest the distributions. The longer one waits, wishing they had grabbed shares and yield, the more likely one is to miss the boat as more money pours into high yielders. It will be easy to be a shoulda, woulda, coulda instead of an appreciator.
I hold a substantial position, am up a dollar a share, and enjoying my yield of 17.47%. Same with WHZ, also in the same category of yield. Both have been very good to me.
Yes, this was the pattern prior to presidential election year combining with huge amounts of money now pouring into the high yielders. I have not found it very helpful lately, especially on monthly payers like ARR. AGNC never paused either. In the past, price would bid up to a high immediately before ex-date, and drop by twice the distribution amount within a few days after ex-date. So, this is still a logical time to buy, but is less sure in the current market conditions than it was for several years in the past. And it may well happen again for any investment after any given distribution. Consider the possibility, but don't depend on it. The other problem with the after ex-date buy is that by the time a cash distribution is available for reinvestment, that momentary window has elapsed.
After all is said and done, YES! Be vigilant of after ex-date lows as potential buying opportunities. Study the charts. Determine the "normal" number of days before and after for high and low, and be locked and loaded in the stand by position in case opportunity knocks. There is a very distinguishable rise and fall, high and low, directly related to ex-dates. Chart them. Put them on the calendar. Make lists and check them twice. Even if those are less obvious now, they can reappear at any quirk of the market. They are merely harder to discern in an upward climbing market, but very pronounced in a sideways market, as well as a dropping market.
Also be aware that, at the current elevated price, there is some profit taking going on. Today's above average volume included at least 2 million shares of large block selling -- i.e., a dollar increase in price equals ten months worth of distributions. I do not think there is a better place they can invest, and they are forever giving up the yield based upon their much lower purchase price, but some still view trusts as stocks rather than as tax law dictated yield machines.
ARR's most recent ex-dates were synonymous with lows. June 13 drop from 7.04 to 6.91 was less than 2%, but more than the dividend if timing was perfect. July 12 drop from 7.34 to 7.21 was again less than 2%, but more than the distribution, and compounded the drop from 7.49 high on the day of the common stock offering announcement. Yet, a mere eight days later it was back to 7.49 and climbing.
We are currently eight days from ex-date. Eight days before the previous two ex-dates the price was at or below the ex-date price. So it seems that now, before price increases further, offers a price similar to the ex-date low, plus receipt of the distribution. All things subject to change depending on the market conditions. But the best time to buy in a rising market is either now or yesterday.