Chimera: The Huge Dividend Must Die

| About: Chimera Investment (CIM)

By Nicholas Blair

In a time like today, when REITs, along with many other real estate-tied investments, are being tested, is there hope for any REIT out there. One possibility that many fail to consider is Chimera (CIM), due to the company being much less well known and the fact that Chimera is simply overshadowed by bigger and more credible REITs such as Annaly (NLY) and American Capital Agency (AGNC). Now, is there hope for Chimera in comparison to other popular REITs, even with its relatively low stock price? I would suggest, of course, looking over the other REITs to compare and reference the numbers of both companies to see which company is best for you as an investor.

One company that is comparable to Chimera is CYS Investments (CYS). Since October of last year, CYS has been on the way up as far as stock price. This is due to a number of factors that garnered positive outlook from many investors, but one event that had a positive effect on not only REITs, but also many other stocks, was the passing of the STOCK act. Essentially, STOCK made it illegal for there to be inside trading by federal employees such as the president, House members, and Senators. What this essentially boils down to is people of power are not allowed to use any of their acquired knowledge (not available to the public) to make stock buys/sells.

The passing of this law drew many new investors with the promise of a fairer playing field, generating a positive outlook on the market as a whole. Now, is this the sole reason why CYS is rising, and if so, when will the fall begin? As of right now, I would suggest a close looking at CYS. As we see the yield percentage of the company fall slightly (about 3% in the last year), we see more investors buying into CYS.

The simple explanation of this idea is that investors are more interested in REITs where the company maintains a feasible yield percentage as opposed to a short term high yield percentage that will fall soon thereafter. The idea is that a company with slightly growing but slightly consistent yield percentages implies the company is getting set in and quite frankly; this is the best time to get into CYS.

The next REIT that is comparable to Chimera is Hatteras Financial (HTS). The same measurements are just as relevant here: high stock prices and a consistent yield percentage (15% +/-). Hatteras represents a great company that I would recommend to any investor, not simply based on the high stock prices and consistent yields, but also the comparison by many speculators of Hatteras to American Capital.

Personally, I would recommend American based on its current price, yield percentage, and all of its financial information. If you closely exam the financial states of both Hatteras and American, you will find that the numbers seem to be similar in the way both companies handle their business. While this is good on paper, it is also great for Hatteras from a speculator perspective because to many investors, American is a very solid investment. By comparing Hatteras to American in the headlines, I can guarantee upped interest in the company from investors.

As of right now, I would definitely say buy some Hatteras stock, but be on the lookout. The trap that many companies fall into is sending out higher ratio yields to attract more investors, but as stated many time before, this tactic will simply hurt the REIT, and its investors, in the future. If we begin to see Hatteras sway from American's blazed path, then expect it to fall into the same category as other failing REITs. So, buy some Hatteras, but keep an eye on it to see what happens.

On the other hand, a stock that I would definitely suggest strictly avoiding is KB Home (KBH). As of right now, both the yield percentage and stock price are taking a major hit. But wait, we have recently seen yield percentages slightly dropping to level out. Well, this is simply not the case. As of right now, KB has an inverted yield percentage, and to put that into perspective, the yield when from .625 to .25 in a single quarter. Because of such an extremely severe drop that occurred so suddenly, KB has seen investors leaving in droves because, of course, the most important part of REITs is the yield percentage/amount.

Some suggest that the market is simply bottoming out, and will soon have only one way to go (up), but I would suggest avoiding KB at the moment. There are just other, more credible, stocks that will yield a better amount right now, and are poised to continue the trend for a medium amount of time. Due to this more safe investment, I would suggest to anyone who is not a major risk-taker avoid KB and stick with more sure REITs.

So, after looking at all of these stocks, how does Chimera compare? To cut to the chase, I would suggest avoidance of Chimera as a money making investment. Last year, it put out 97% of its net gain in yields. This percentage goes back to the idea that companies should be hanging around the 90% minimum to ensure its investors that the company is worth an investment. Expect to see Chimera stock and interest decrease as long as the company attempts to keep up the 15% yield percentage.

Just as with KB, I would suggest sticking with a safe company that is in favor or steady growth or consistency rather than quick and sporadic growth. Once again, remember that if it sounds too good to be true, then it probably is. In the case of Chimera, there definitely not enough money in the companies accounts to warrant 15% yields, and therefore, should be avoided right now.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.