Rising Rates, Steady Returns: Why Rithm Capital Corp PD's Fixed Dividend Could Outperform

The preferred stock market often feels like a high-wire act in a rising rate environment. As central banks tighten monetary policy, variable-rate securities might seem like the logical choice—after all, their yields rise with rates. But what about fixed-rate preferreds like Rithm Capital Corp PD (RITM.PRD), which has held fast to its $0.4375 quarterly dividend (7.00% annualized) since issuance? In an era where stability is scarce, this Series D preferred stock offers a compelling case for income investors.

Ask Aime: Why are fixed-rate preferreds like Rithm Capital Corp PD appealing in today's rising rate environment?

Let's dissect why its fixed-rate structure could be an underappreciated advantage—and why its current valuation might be a hidden gem.

The Fixed-Rate Fortitude in a Volatile Landscape

The most immediate allure of Rithm PD's Series D is its locked-in coupon rate of 7.00%, guaranteed until November 15, 2026. Unlike many resettable preferreds that tie dividends to short-term Treasury rates, this issue's coupon is shielded from near-term rate hikes. For example, if the Fed continues to raise rates this year, variable-rate preferreds might see dividends climb—but their prices could drop sharply as new issuances offer higher yields.

Rithm PD's fixed rate, however, insulates income from immediate rate volatility. This is a critical edge for retirees or investors prioritizing principal preservation. Even as the Fed's terminal rate climbs, the dividend check remains $0.4375 every quarter until 2026—a certainty in an uncertain market.

Ask Aime: Should I buy Rithm Capital Corp's RITM.PRD preferred stock?

Valuation: A Discount to Par, Yielding 7.38%

Rithm PD trades at a $23.73 market price, a 5.08% discount to its $25 par value. This creates two opportunities:
1. Yield Boost: The current yield of 7.38% (calculated as $1.75 annual dividends divided by $23.73) is higher than the coupon rate, rewarding buyers at current prices.
2. Par Redemption Risk: If Rithm calls the shares in 2026, investors could redeem at $25, locking in a 5.08% capital gain on top of accrued dividends.

The Post-2026 Reset: A Double-Edged Sword?

After November 2026, Rithm PD's coupon resets every five years to the five-year Treasury rate + 622.3 bps. If Treasury yields remain elevated (say, 4-5%), the new rate could be ~10-11%, far above today's 7%. This could attract investors seeking higher income down the line. However, there's a caveat: rising rates might depress the stock's price before the reset, as buyers anticipate lower relative value.

Investors holding until redemption in 2026 avoid this uncertainty entirely—a key point for those with shorter time horizons.

Risks to Consider

• Liquidity: Preferred stocks can trade sparsely. Check bid/ask spreads before entering.
• Credit Quality: The provided data lacks a credit rating for RITM.PRD. Investors should scrutinize Rithm Capital's balance sheet (as a REIT focused on real estate and credit, its performance hinges on property values and loan portfolios).
• Call Risk: Rithm could redeem shares early at par, forcing investors to reinvest proceeds in a higher-rate environment.

Investment Thesis: Buy the Discount, Hold Until 2026

For income-focused investors with a 2-3 year horizon, Rithm PD's Series D offers:
- A 7.38% yield at current prices, with dividends paid in cash quarterly.
- Capital appreciation potential if the stock converges to par before redemption.
- Safety: Cumulative terms mean missed dividends must be paid if suspended—a low-probability scenario given Rithm's consistent dividend track record.

Historical backtests of RITM.PRD's performance when bought on Federal Reserve rate decision announcement dates from 2020 to 2025 reveal significant volatility. This strategy resulted in a maximum drawdown of -38.84% and an excess return of -43.64%, underscoring the risks of short-term timing.

Final Take

Rithm Capital Corp PD's fixed-rate preferred stock is a contrarian play in a rising-rate world. While variable-rate securities might offer eventual upside, Rithm PD's stability and discounted pricing make it a solid choice for investors seeking income without rate risk.

Actionable Advice:
- Buy now if you can hold until 2026. The 7.38% yield and potential par redemption make this a compelling income generator.
- Avoid if you're chasing short-term capital gains—post-2026 volatility could shake the stock's price.

In a market where certainty is rare, Rithm PD's unchanging dividend is a rare commodity.

Disclaimer: Always conduct your own research or consult a financial advisor before investing.