Is Orchid Stock Worth Buying for Its Lucrative 20.3% Dividend Yield?

Orchid Island Capital, Inc. ORC has a record of paying out regular dividends, currently yielding a staggering 20.3% compared with the industry average of 12.4%. The company has increased its dividend three times over the past five years.

Dividend Yield

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This specialty finance mortgage real estate (mREIT) company, which invests in residential mortgage-backed securities (RMBS) on a leveraged basis, offers favorable long-term stockholder returns and a substantial dividend yield. Income-seeking investors have a large appetite for REIT stocks, as U.S. law requires REITs to distribute 90% of their annual taxable income in the form of dividends. 

ORC peers AGNC Investment AGNC and Arbor Realty Trust ABR also pay dividends regularly. AGNC Investment has a dividend yield of 15.8% and Arbor Realty Trust has a dividend yield of 15.5%.

Coming back to Orchid, it has a strong liquidity position. As of March 31, 2025, the company had $446.5 million in cash and cash equivalents, and unpledged securities. It has no debt as of the same date.

ORC also has a share repurchase plan in place. In 2022, the board of directors approved an increase in the authorization up to an additional 4.3 million shares, bringing the remaining authorization under the stock repurchase program to 6.2 million shares. As of April 25, 2025, the company had the authorization of 2.7 million shares available under the program.

Given such a staggering dividend yield, it may entice many investors to buy the stock. Is now the right time to invest? To answer this, it is essential to delve into the details and evaluate various factors at play.

ORC to Gain From Decline in Mortgage Rates

Though the Federal Reserve has lowered the interest rates by 100 basis points in 2024, it has kept rates steady since then due to macroeconomic uncertainty. Despite this, mortgage rates have slightly declined. Per a Freddie Mac report, the average rate on a 30-year fixed-rate mortgage was 6.77% as of June 26, 2025, down from 6.81% in the previous week.

Further, based on the incoming economic data, market participants are predicting at least two rate cuts by year-end. In its June Housing Forecast, Fannie Mae projected mortgage rates to reach 6.6% by the end of the third quarter of 2025 and 6.5% by the year’s end.

With rates trending lower and balanced supply/affordability playing out in the mortgage market, loan demand is expected to improve. With rising purchase originations and refinancing activities, Orchid will likely witness book value improvement in the coming period as spreads in the Agency market tighten, driving asset prices. This should also boost the company’s net interest spread, improving the portfolio's overall yield. This is expected to support ORC’s financials in the upcoming period.

Orchid & Agency RMBS

ORC has maintained its focus on agency RMBS, an investment strategy that has positioned it as one of the strong players in this specialized market segment.

Orchid’s investment strategy focuses on two categories of Agency RMBS, traditional pass-through Agency RMBS, such as mortgage pass-through certificates and collateralized mortgage obligations issued by Fannie Mae, Freddie Mac, or Ginnie Mae, and structured Agency RMBS.

Interest rates were generally range-bound, and volatility was low for most of the first quarter, making it an ideal condition for a levered investment in Agency RMBS for ORC. Accordingly, the company generated attractive returns for the period. Given this, Orchid generated a positive total return of 2.6% in the first quarter of 2025, driven by the company’s compelling monthly dividend.

Agency RMBS will continue to offer a compelling return opportunity for ORC. Although the market is extremely competitive, the company's focus on agency RMBS puts it in a position to possibly profit from favorable trends. However, execution will be crucial to achieving these advantages.

ORC Price Performance, Estimates & Valuation Analysis

Orchid shares have gained 12.5% in the past three months compared with the industry’s rally of 10%. Meanwhile, AGNC Investment and Arbor Realty have risen 9.2% and 1.5%, respectively, over the past three months.

Price Performance

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The Zacks Consensus Estimate for ORC’s 2025 and 2026 earnings implies year-over-year jumps of 394.4% and 24.5%, respectively. The estimates for 2025 and 2026 have been unchanged over the past 30 days.

Earnings Estimates

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From a valuation standpoint, Orchid appears expensive relative to the industry. The company is currently trading at a premium with a forward 12-month price-to-sales (P/S) TTM multiple of 2.47X, higher than the industry average of 2.35X. Its peer AGNC Investment and Arbor Realty Trust have forward 12-month P/S ratios of 2.75X and 1.70X, respectively.

Price-to-Sales TTM

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How to Approach Orchid’s Stock Now?

ORC’s attractive dividend yield, strong liquidity position and strategic focus on agency-backed RMBS make it well-positioned to capitalize on long-term growth, especially as mortgage rates gradually decline. These factors can drive book value growth, improved net interest spreads and solid earnings in the coming quarters.

However, uncertainties around interest rate path and execution risks, along with premium valuation, suggest that it is prudent to remain cautious at the moment.

Orchid currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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AGNC Investment Corp. (AGNC) : Free Stock Analysis Report

Arbor Realty Trust (ABR) : Free Stock Analysis Report

Orchid Island Capital, Inc. (ORC) : Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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