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Updated: Jun 1, 2023

Arlington Asset Investment Corp (NYSE: AI) is a publicly-traded real estate investment trust (REIT) that specializes in acquiring and holding residential mortgage-backed securities (RMBS). As a REIT, Arlington Asset is required to distribute at least 90% of its taxable income to shareholders in the form of dividends.

One of the ways that Arlington Asset raises capital is by issuing preferred stock, which pays a fixed dividend rate to investors. In November 2019, Arlington Asset issued a new series of preferred stock, the 8.250% Cumulative Redeemable Fixed-to-Floating Rate Series C Preferred Stock (NYSE: AI-C). In this article, we will take a closer look at this security and what it means for investors.

The AI-C preferred stock has a par value of $25 per share and pays a fixed annual dividend rate of 8.250% of the par value, or $2.0625 per share per year. The dividend is cumulative, which means that if Arlington Asset fails to pay a dividend in any year, the unpaid dividends accumulate and must be paid before any dividends can be paid to common stockholders.

After five years, the dividend rate will reset to a floating rate based on the prevailing three-month LIBOR rate plus a spread of 5.669%. The floating rate will be reset quarterly, and there is no limit on how high the rate can go. This means that investors in the AI-C preferred stock will receive a fixed dividend for the first five years, after which the dividend rate will be determined by market conditions.

The AI-C preferred stock is callable by Arlington Asset at any time on or after November 15, 2024, at a price of $25 per share plus any accrued and unpaid dividends. This means that if interest rates fall significantly, Arlington Asset may choose to call the preferred stock and issue new preferred stock with a lower fixed or floating rate.

The AI-C preferred stock is listed on the New York Stock Exchange under the ticker symbol AI-C and can be bought and sold like any other stock. However, because it is a preferred stock, it is less volatile than common stock and is less likely to experience significant price fluctuations.

Investors who are looking for a high-yield fixed income investment may find the AI-C preferred stock attractive. The fixed dividend rate of 8.250% is higher than the current yield on many other fixed-income securities, such as bonds and CDs. Additionally, the cumulative feature of the dividend provides an extra layer of protection for investors.

However, investors should be aware that preferred stock is not without risks. If Arlington Asset were to experience financial difficulties, it may be forced to suspend or reduce its dividend payments, which would have a negative impact on the AI-C preferred stock price. Additionally, the floating rate feature of the stock means that the dividend rate may fluctuate significantly depending on market conditions.

The AI-C preferred stock is an interesting investment opportunity for investors who are looking for a high-yield fixed income security. The fixed dividend rate of 8.250% is attractive, and the cumulative feature of the dividend provides an extra layer of protection. However, investors should be aware of the risks involved and carefully consider whether this security is appropriate for their investment goals and risk tolerance.

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