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Since the company has stopped making the required quarterly earnings reports Chimera Investment Corp. (NYSE:CIM) has managed to do what it could not when it did follow the rules - pay a steady dividend.

Chimera has announced it will pay a fourth quarter dividend of 9 cents per share with a December 27 ex-dividend date and also that the company plans to pay the same 9 cents per share for the first and second quarters of 2013. Four straight quarters of a level dividend is a first for Chimera since the company paid 17 cents per share for the fourth quarter of 2010.

Chimera Investment has not made a quarterly earnings report since the third quarter of 2011 and is not expected to make another financial report until early in 2013.

Return of Capital Confirmed

Chimera Investment stated previously that the current level of dividend payments may represent return of capital as well as ordinary income or capital gains. In the press release, the company confirmed that a portion of the 2012 distributions will be classified as return of capital. The expectation by Chimera is that 6 cents of the 37 cents per share paid in 2012 will be return of capital.

Since the company never mentioned return of capital before setting the current 9 cent dividend rate, I am going to assume the ROC will be primarily attributed to the 3rd and 4th quarter distributions, leaving actual portfolio earnings in the 6 cent per share per quarter range. An annual dividend of 24 cents per share would put the current yield at 9%. Flipping the numbers over, if the actual earnings from Chimera were 24 cents annually and the market put the prevalent 14% yield on the stock, the shares would drop to about $1.75. The 9 cent quarterly dividend policy seems to be in place to support the stock price until Chimera can get its financial statements figured out.

Reconfirms Uncertainty of Reporting

It is easier just to take the important lines out of the press release concerning the release of quarterly and year-end reports going back to the 2011 annual report:

"The Company is currently unable to estimate the timing for filing its 2011 Form 10-K"

and

"The Company had previously announced that it would delay the filing of its Annual Report on Form 10-K for the year ended December 31, 2011, and its Quarterly Reports on Form 10-Q for the quarters ended March 31, 2012, June 30, 2012, and September 30, 2012. The Company announced that its previously filed Annual Reports on Form 10-K for the years ended December 31, 2010, 2009 and 2008, and the Quarterly Reports on Form 10-Q beginning with the quarter ended September 30, 2008, and for all subsequent quarters through the quarter ended September 30, 2011, will be restated and can no longer be relied upon." (Emphasis added).

As I have previously reported, the NYSE has given Chimera an extension for reporting until early January 2013.

The Positives

My expressed opinion is that the delays in making the required financial reports are an indicator that something is seriously wrong with the value of the Chimera investment portfolio. However, the company continues to state that once accurate financial reports are completed the results are "not expected to affect the company's previously announced GAAP or economic book values, actual cash flows, dividends and taxable income for any previous period."

Also of interest was the note that the management fee paid to Annaly Capital Management (NYSE:NLY) subsidiary Fixed Income Discount Advisory Company will be reduced from 1.5% to 0.75% starting on November 28 and staying in force until the required financial reports have been released.

Conclusions

The future of Chimera Investment remains highly speculative. Annaly Capital recently made an offer to purchase another REIT where it manages the portfolio, throwing an extra chip into the pot. The decision to continue paying the current dividend level through the first half of 2013 extends the support of the share price at the current level for another 6 months. With the dividend extension announced, it will be interesting to see what happens in January when the NYSE extension runs out.

CIM Chart

CIM data by YCharts

Source: Chimera Investment Strings Investors Along With Return Of Capital Dividends