Stacking the Deck in a High Flying Mortgage REIT
- Posted by Greg Harmon
- on May 15th, 2012
There are a couple of Real Estate Investment Trusts, REIT’s, that I track with redonkulous dividend yields. They are no big secret but this the new ex-dates approaching I have a trade idea on them.
American Capital Agency Corp., $AGNC
American Capital Agency Corp., $AGNC, has continued to trend higher for more than 3 years. Through that time it has also paid one of the highest dividend around, currently at a 15.5% rate on forward earnings. The best of both worlds. It is a no-brainer to just buy it, but when? A look at the chart above shows a dip in the price after the last ex-dividend date March 5. So maybe wait until the next ex-dividend date to get in? It is only about 3 weeks away. And the Relative Strength Index (RSI) is getting overbought. It may pullback anyway. But in doing that you will miss that fat dividend. Instead consider buying this stock now, to be in on ex-date, and put a collar on it to let any pullback pay you more. The June 33/31 Collar, selling the June 33 Call and buying the June 31 Put, adds only 10c to the cost of your trade, but can pay off much more so if the stock pulls back like after the last ex-date. Plus it gives you downside protection without selling the stock, on a move of just 3%. Ten cents to protect a $1.25 cash flow. No-brainer.
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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.blog comments powered by Disqus
Gregory W. Harmon CMT, CFA, has traded in the Securities markets since 1986. He has held senior positions including Head of Global Trading, Head of Product Development, Head of Strategy and Director of Equity. (More)
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