CapitalSource is no longer the high dividend stock you thought you knew and loved. This mortgage REIT, which in effect always operated as a commercial lender and merely held a mortgage portfolio in order to satisfy the requirements for tax-reporting as a REIT, is not going to be a REIT much longer.

At least, that’s how it looks almost certain to unfold — there is still a dividend, but it was announced after the market close today that the dividend would be five cents per share, which would annualize to .20, or a yield of about 1.5%. That’s a far cry from the previous yield, which was .60 per share on a quartelry basis, for an annual yield of close to 20%.

So the shareholder base is going to shift considerably, though to be fair this move was very clearly telegraphed by the company, and shareholders should have been expecting it. This is now a commercial bank, for all intents and purposes, and it will no longer rival Business Development Companies like American Capital Strategies or Allied Capital for juicy dividend yields.

That’s not necessarily a bad thing — I do hold some CapitalSource shares, and I also have a calendar spread of options in place. I called the spread a bit too late — I sold 09 Leaps instead of something for this fall, because I figured the announcement of a lower dividend would be formalized later in the Fall, but the 2010 Leaps should still be fine and profitable. The argument here is that CapitalSource very suddenly went from being a bad option play, since a large part of their return was expected to be in the form of a dividend and options don’t account for dividends, to a stock that reinvests its income and should see that growth reflected in a growing share price (assuming they perform well). So I thought that options for CSE would be generally repriced based on this, and arguably they still are not, but I was a bit late in my guess for the best option date to sell.

I expect the share price of CSE to be pretty weak for a while, as folks leave who wanted the high dividend and as investors take a “wait and see” approach to management’s assertion that they have lots of great ideas for how to invest the money, but I do ...