Rithm Capital's Preferred Stock Offers Steady Dividends Amid Rate Shifts

Rithm Capital Corp.’s 6.375% Series C preferred stock (RITM.PRC) has emerged as a compelling income-generating instrument for investors seeking reliable dividends, even as it navigates a transition to a floating-rate structure. With its recent CAD 0.4938 quarterly dividend declaration, the stock maintains an annualized yield of 6.39%, offering a notable edge over fixed-income alternatives. However, its future performance hinges on shifting interest rates and the company’s redemption timeline.

Dividend Reliability and Current Yield

The stock’s quarterly dividend of CAD 0.4938 per share translates to an annual payout of CAD 1.59375, a figure that has remained consistent since its issuance. This stability, coupled with its current trading price of $24.94, results in a 6.39% yield, outpacing the 3.5% yield on the S&P 500 and the 4.1% yield on the Bloomberg Aggregate Bond Index. While the stock trades at a slight discount to its $25 liquidation preference, the gap is narrow—just 0.24%—suggesting minimal downside risk for investors.

This near-par valuation contrasts with broader preferred stock markets, where many issues trade at deeper discounts amid rising rates. Rithm’s resilience likely stems from its floating-rate conversion mechanism, which aligns dividends with market conditions starting in early 2025.

The Floating-Rate Transition

A critical inflection point occurred on February 15, 2025, when the stock shifted to a floating-rate structure. Dividends are now tied to the 3-month LIBOR + 4.969%, a formula that could offer protection against further rate hikes. As of April 2025, 3-month LIBOR stood at approximately 5.2%, implying a floating dividend rate of ~10.17%—far above the fixed rate. However, this dynamic carries dual risks:

1. Rate Volatility: If LIBOR declines, so will dividends, potentially eroding income.
2. Redemption Risk: Rithm may call the stock at par ($25) post-February 2025, limiting upside for holders.

Investors must weigh these risks against the current yield advantage and the stock’s liquidity, which is robust given its trading on Nasdaq.

Tax Considerations and Liquidity

Preferred dividends are taxed as ordinary income, a drawback compared to qualified equity dividends taxed at lower rates. However, for investors in tax-advantaged accounts or those prioritizing steady cash flows, this is a manageable trade-off. Additionally, RITM.PRC’s average daily trading volume of 200,000 shares ensures ease of entry and exit, unlike many thinly traded preferred issues.

Conclusion: A Prudent Income Play, with Caveats

Rithm Capital’s Series C preferred stock presents a compelling opportunity for income-focused investors, offering a 6.39% yield with minimal price erosion risk. The floating-rate mechanism adds flexibility in a high-rate environment, though it introduces uncertainty if rates reverse. The $0.06 discount to liquidation value acts as a buffer, while the stock’s liquidity and quarterly payouts enhance its appeal.

However, buyers must acknowledge the redemption risk and potential dividend volatility. For a conservative allocation—say, 10% of an income portfolio—RITM.PRC merits consideration. Investors should monitor LIBOR trends and Rithm’s financial health, as the company’s ability to sustain payouts depends on its underlying performance. In a yield-starved market, this preferred stock stands out as a pragmatic choice, provided one is prepared for the evolving rate landscape.

Final Note: Always evaluate individual risk tolerance and consult a financial advisor before making investment decisions.