Orchid Island Capital, Inc. (ORC): Leading the Pack with a 17.87% Monthly Dividend Yield

We recently compiled a list of 10 Highest Paying Monthly Dividend Stocks. In this article, we are going to take a look at where Orchid Island Capital, Inc. (NYSE:ORC) stands against the other high paying monthly dividend stocks.

Dividend stocks have consistently been popular with investors, regardless of how often they are distributed. However, when considering the frequency of these payments, it’s clear that companies carefully decide how often to reward their shareholders. While many large companies prefer to issue dividends quarterly for convenience, others provide monthly dividends, which some investors find more appealing. After all, who wouldn’t appreciate a steady stream of passive income each month? Nevertheless, history indicates that companies offering monthly dividends tend to have higher yields but often lack stable dividend policies.

Dividend stocks have consistently played a crucial role in the market’s overall returns. Since 1960, reinvested dividends and the power of compounding have accounted for 85% of the cumulative total return of the market, according to a report by Hartford Funds. The report further mentioned a broader view of these returns and highlighted that from 1940 to 2023, dividend income contributed an average of 34% to the total return of the broader market. The performance of dividend stocks during this period varied depending on market conditions. According to a report by Hartford Funds, during the 1970s—a decade marked by high inflation and sluggish economic growth—dividends accounted for 70% of total returns.

Also read: 10 Extreme Dividend Stocks With Upside Potential.

Among dividend strategies, investors are primarily drawn to high yields because they signify that the stock offers a substantial return through dividends compared to its price. Focusing solely on yield can be misleading. Some companies maintain dividend payments even when their financial health is shaky, while others distribute dividends too aggressively, leaving insufficient profits to reinvest in their operations. A high dividend yield might actually signal a struggling business with a low share price. This is where dividend coverage becomes a crucial measure of a company’s ability to meet its dividend obligations. If that is not in line, the company is likely using past retained earnings to fund current dividends. This situation often precedes a dividend cut, which can severely impact the company’s valuation.

That said, high-yield dividend stocks can still maintain strong dividend policies if their business fundamentals are solid. Many companies with above-average yields have consistently paid and even increased dividends over the years. Research suggests that, over the long term, such stocks often deliver better results. For example, a study by the University of Nevada found that portfolios composed of the top 10 highest dividend yield stocks from the Dow 30 index outperformed those with medium and low dividend yields from 1987 to 2012. The study also noted that investing in high dividend yield stocks can be profitable in the long run, despite potential short-term fluctuations in returns. In view of this, we will analyze the highest-paying monthly dividend stocks in this article.

Our Methodology:

For this list, we looked at stocks that pay monthly dividends. Among them, we chose stocks with the highest dividend yields, which range from 11% to nearly 18% as of August 16. Most of these stocks are from the REIT and capital market sectors. REITs are obligated to distribute about 90% of their income to shareholders, which is good for income investors as it provides them with a reliable and substantial stream of dividends. However, it’s important to note that many of these stocks, despite their high yields, don’t have a consistent history of paying dividends and have experienced dividend reductions or pauses in the past. The stocks are ranked in ascending order of their dividend yields as of August 16.

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Orchid Island Capital, Inc. (NYSE:ORC)

Dividend Yield as of August 16: 17.87%

Orchid Island Capital, Inc. (NYSE:ORC) is an American specialty finance company, headquartered in Florida. As monetary policy has shifted towards a more accommodative stance, equity prices for mortgage REITs have strengthened, enabling the company to raise common equity capital through its at-the-market program. During the second quarter of 2024, the company successfully raised approximately $100.7 million, generally at a slight discount to book value. These funds were invested in Agency RMBS assets at highly attractive levels. This influx of new equity capital allowed the company to expand its portfolio by approximately 16.6% during the quarter.

Orchid Island Capital, Inc. (NYSE:ORC) remained confident in its future investments as well. It expects that investment opportunities will continue to be attractive, with the potential for improved total returns if the Feds begins easing monetary policy, especially if the banking sector becomes more active in the Agency RMBS market. Even without such developments, the current investment environment offers appealing total returns, with hedged net interest spreads providing ample support for the current dividend level.

Orchid Island Capital, Inc. (NYSE:ORC) has paid regular monthly dividends to shareholders since its IPO in 2013, which makes it one of the best dividend stocks on our list. In 2013, its cumulative dividends came in at over $4.6 million, which grew to over $81 million at the end of 2023. Over these years, it returned approximately $658 million to shareholders through dividends. Currently, it pays a monthly dividend of $0.12 per share and supports a dividend yield of 17.87%.

Overall ORC ranks 1st on our list of the highest paying monthly dividend stocks. While we acknowledge the potential of ORC as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued dividend stock that is more promising than ORC but that trades at less than 7 times its earnings and yields nearly 10%, check out our report about the dirt cheap dividend stock.

 

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Disclosure: None. This article is originally published at Insider Monkey.