REITs are often difficult to analyze, as trouble in the economy can lead to particularly bad situations for them, especially with problems surrounding mortgages and people who are unable to pay back loans. As the market has not yet recovered, many investors may be concerned about companies like Chimera (CIM). When investigating the recent news, however, there are signs indicating that the company is in a decent place once again.
Before investigating some positive news, however, it is important to note that Chimera is no longer gaining positive attention for its dividends. It has cut its rates many times, so this has become a less appealing stock for investors. Those looking for good dividend stocks, therefore, may want to look elsewhere, but this development has another negative implication for shareholders as well. It will cause more investors to walk away from the company, which will lower the stock price. Even if dividends are unimportant to a shareholder, therefore, this is important to pay attention to.
The problems with Chimera's dividends may only continue to escalate, as it has been paying out more in dividends than it should have. Some note that this practice is only temporarily beneficial, and it certainly seems that Chimera has moved beyond this point. As the dividend issues get worse and shareholders begin leaving, this stock will likely suffer.
In contrast to Chimera, Apollo Residential Mortgage (AMTG) has recently declared a $0.75 dividend per share. This is going to spark interest from people looking for dividend stocks, assuming Apollo can maintain this rate. It will definitely make this stock more appealing for the time being, so I expect Apollo stock to be on the rise. This success may pull even more investors away from Chimera, as it demonstrates how there are much better dividend stocks available. This is the main issue facing Chimera at the moment, however, and there are still many reasons to be optimistic.
People are still having some trouble with refinancing mortgages. Chimera is amongst the companies that are willing to take the risks with these people, and this could actually be beneficial to it. When the new Home Affordable Refinance Program (HARP) kicks in, Chimera could make a lot of money as a result of the risks it has taken. This puts the company in a strong position, and the developments in this program are certainly worth watching. At the moment, however, things look very positive for the company in relation to this new version of HARP.
There are high levels of optimism for other reasons as well. People believe that mortgages will rise again when the market has stabilized, and REITs should make a comeback when that happens. Chimera has a lot of potential in the long term, therefore, so investors should begin returning to the stock after the dividend issue has blown over.
This may be a good time to get involved with the stock, furthermore, as people are starting to take notice of the company. In fact, Wells Fargo (WFC) has given a "market perform" rating to Chimera stock, which should bring even more optimism about the stock. Investors will begin to notice this, but the reports are still mixed about the stock. For example, Jeffries Group (JEF) reaffirmed its "hold" rating on Chimera, citing the lower cash flows as a reason not to be extremely bullish with the company yet. While this is reasonable, I agree more with the rating from Wells Fargo. The company is in a great position to benefit from HARP, and it is also set to benefit when the market stabilizes. In the short term, this may not be a great stock, but it does appear to have some long-term promise.
Before making too strong of claims about Chimera, it may be a good idea to see how the rest of the field is doing. As I have mentioned, Apollo is having better news about its dividends, but some other competitors have positive developments in the news as well.
Federal Agricultural Mortgage (AGM) has named Stephen P. Mullery as the new General Counsel. This will bring new ideas to the board, but Mullery is also a secure choice for the company. He has great experience and much knowledge about the company. His past success with the company should only be one more source of comfort for investors. This is great news that such a fitting person has been found for this appointment. As with any new appointment, however, investors should keep an eye on things to see whether or not major changes result from this. For now though, I do not expect this news event to have any major effect on the stock.
Altisource Portfolio Solutions (ASPS) has been surrounded by optimism lately as well, which should lead to great investor confidence. It is one stock that has received attention for performing well despite drops in the market overall. This makes it appear capable of surviving tumultuous times, and it has a stamp of approval for "buy" and "hold" scenarios. I expect the stock to be going up as people continue to notice its impressive performance.
Not all is great in the industry, however, as Annaly Capital Management (NLY) is encountering some significant difficulties. Some of its executives are being investigated for excessive bonuses and breaches of fiduciary responsibilities. This may only relate to a small number of employees, but these employees are at the top of the company. These investigations affect the company as a whole, therefore, and they give a bad public image for the company as well. This stock will likely be struggling quite a bit as this situation develops further.
Chimera may not be in the news exclusively for positive reasons, but it has been receiving attention for the way it will benefit from events in the future. As far as dividend stocks go, Apollo appears to be a better option. Altisource Portfolio Solutions has a great performance history to carry it through, and other competitors may appear like better stocks as well. Chimera may have great things in store for the long term, however, and some analysts are beginning to take notice. This may be a bit of a hidden gem, and while things may not look outstanding at the moment, I expect great things from Chimera stock in the future.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.