Capstead Mortgage Shares Plunged: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of mortgage REIT Capstead Mortgage (NYSE: CMO  ) temporarily dropped as much as 13.6% this morning on a tremendous volume spike, only to retrace back to a much lesser drop in a matter of minutes.

So what: It wasn't a bad earnings report -- that happened two days ago and didn't cause much of a stir. No, Capstead's plunge-and-climb was mirrored exactly by other REITs such as Annaly Capital Management (NYSE: NLY  ) , Chimera Investment (NYSE: CIM  ) , and American Capital Agency (Nasdaq: AGNC  ) because mortgage-bond repo rates spiked overnight and threatened to damage the entire industry.

Now what: The instant recovery came as opportunistic investors pounced on what looked like a panic-fueled opportunity. Whatever floats your boat, I suppose -- these stocks all come with tremendous dividend yields that are further amplified by every price drop. Just remember that the REITs are basically paying a reward for accepting their huge risks, and that not every enormous dividend story ends well. (Spoiler: NovaStar Financial went supernova in 2007 and now sports a pink-sheet market cap of about $3 million.) In other words, jump in on these drops only if you know exactly what you're getting into, because the panic-sellers might be right.

Interested in more info on Capstead Mortgage? Add it to your watchlist.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. The Motley Fool owns shares of Annaly Capital Management and Chimera Investment. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool is investors writing for investors.


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