MFA Financial's Preferred Dividends: A Yield Play in a Rising Rate Environment

Investors seeking income in a world of rising interest rates face a pivotal choice: lock into fixed-rate securities or embrace floating-rate instruments that could benefit from higher rates. For those willing to take calculated risks, MFA Financial’s Series C Preferred Stock (MFA.PRC) presents a compelling opportunity. With its 9.90578% annual yield—a stark contrast to the fixed 7.5% offered by its sibling Series B—this security is positioned to thrive as the Federal Reserve’s rate hikes reshape the investment landscape.

Why Series C Now? The Floating Rate Edge

The Series C Preferred Stock transitioned to a floating-rate structure on March 31, 2025, tying its dividend to the three-month CME Term SOFR (Secured Overnight Financing Rate) plus a 5.345% fixed spread. For the quarter ending June 30, 2025, this formula yielded a 9.90578% annualized return, far exceeding Series B’s fixed 7.5%. The magic here lies in the asymmetric upside: as short-term rates rise, so does the dividend, creating a natural hedge against inflation and monetary tightening.

The SOFR Mechanism: A Recipe for Rising Returns

The Series C’s dividend calculation is straightforward yet powerful. Each quarter, the rate is set by adding three components:
1. The three-month CME Term SOFR (a benchmark reflecting overnight borrowing costs),
2. A 5.345% fixed spread, and
3. A smaller adjustment (e.g., 0.26161% in Q2 2025).

This structure ensures investors benefit directly from rising rates. For example, if SOFR increases from its current level, the dividend will follow—potentially offering double-digit yields in a high-rate environment. Meanwhile, the fixed spread acts as a floor, protecting returns even if rates stabilize.

Risk vs. Reward: Stability Meets Opportunity

While preferred stocks inherently carry interest rate risk—dividend values drop if rates fall—the case for Series C is bolstered by MFA Financial’s rock-solid track record. The company has paid $4.9 billion in dividends since its 1998 IPO, with no missed payments despite economic downturns. This stability is critical: Series C’s $24.36 market price trades at a 2.56% discount to its $25 liquidation preference, adding a margin of safety.

Yet the risks are real. If rates unexpectedly drop, the floating dividend could decline. However, with the Fed signaling further hikes and SOFR at multi-decade highs, the tailwinds are aligned for Series C’s asymmetric profile.

Act Before June 4: The Clock is Ticking

The June 30 dividend payment—already priced at $0.61911 per share—will be paid to holders of record as of June 4, 2025. This creates a clear action point: investors who buy MFA.PRC before June 4 lock in this quarter’s 9.9% yield.

For income seekers, Series C offers a rare blend of high yield, rate sensitivity, and institutional credibility. In a world where 7.5% fixed yields seem quaint, MFA’s floating-rate play is a lifeline.

Final Take: A Yield Play for the Brave

Series C isn’t for the faint-hearted—it demands conviction in rising rates and tolerance for volatility. But in an era where bonds are yielding 4-5%, a 9.9% dividend with rate-linked upside is a rare bird. With the Fed’s hiking cycle far from over, MFA.PRC is a must-own for portfolios craving income in turbulent times.

Bottom Line: The June 4 record date is a fork in the road. Stick with Series B’s safety—or seize Series C’s asymmetric upside. Choose wisely.