3 Yield Ideas: Pitney Bowes, Chimera Investment, Hancock Bank Opportunity Fund

Includes: BTO, CIM, PBI
by: Yieldpig

Let’s try to make a good trade into this edition’s three lil’ yield piggies…

“Mail of the species…”

Pitney Bowes, Inc. (NYSE:PBI)
Recent Price: 22.80
P/E: 15.64
Current Yield: 6.48%

The Skinny
Yes….this is a rerun. PBI is probably one our perennial favorites here at Yieldpig. Whenever the stock pulls back to where it yields better than 6%, it’s a good opportunity. While regular mail may be viewed as the buggy whip of communication, PBI is still the biggest and baddest in the mail sorting and machine business. They’re also focusing their efforts on Volly, their new cloud product. It only makes sense that they can capitalize on the penetration they’ve established. Stock looks cheap at 15.6x’s trailing earnings and 10.01x’s forward.

The Danger
Q1 earnings were a bit soft due to moderation in their recurring revenue stream (supplies, financing, etc.). The company also experienced a fire at one of its largest pre-sort facilities in Dallas, Texas which didn’t help. And, of course, looking at the bigger picture, do you really want to own shares of the best buggy whip company in the business. Just sayin’.

“It’s still a mythical beast…”

Chimera Investment (NYSE:CIM)
Recent Price: 3.44
P/E: 5.55
Current Yield: 16.27%

The Skinny
Again…another repeat. But, the value looks compelling. CIM is a REIT that invests in residential mortgage backed securities and other real estate related financial instruments. The stock trades right at about book (1.06x’s) value. Strong 20% ROE. Granted, while the current environment seems like the absolute worst time to invest in anything mortgage related, it’s probably the best. The assets REITs like CIM are looking for are priced at deep discounts. That opportunity will flow through to the stock. And as the residential mortgage market becomes more privatized (less government backed lending thanks to a hobbled Fannie (OTCQB:FNMA) and Freddie (OTCQB:FMCC)), yields on MBS (mortgage backed securities) will be more attractive.

The Danger
Did you see the Shiller chart last week? In a word: “fugly”. Whatever the housing market is doing, it’s safe to say, it’s not improving. As long as it stays weak, mortgage backed securities will remain a dicey proposition. CIM took a $19 million writedown on its non-agency securities Q1 2011. That’s not good. And if the housing market continues to suck wind, expect more. This one is only for the bold.

“No…not the “Takin’ Care of Business” band…”

John Hancock Bank and Thrift Opportunity Fund (NYSE:BTO)
Recent Price: 15.85
Current Yield: 6.02%

The Skinny
Are we insane? Yeah. Probably. But that doesn’t mean there’s not some kind of opportunity in the bank space no matter how dreadful it looks. This was a pretty rock-n-rollin’ closed end fund when regional banks were getting fat, dumb and happy and buying each other every 15 minutes. Now, the environment’s totally different. BTO trades at a 17% discount to NAV. Not bad. And the yield is about a bazillion times better than just about any bank stock out there (if said bank stock even has a dividend). Eventually, the financial sector will turn, BTO will be there to catch that pitch.

The Danger
The share price of BTO got so ugly during the financial crisis that a 1 to 4 reverse split was engineered to boost it. That would put the current share price at around $3.95. Reverse splits are like a crappy report card in 5th grade. You don’t want to tack it up on the refrigerator. Although things have improved, the banking sector is still a minefield. TARP needs to be repaid and, bottom line, banks need to relearn how to make money again. Hey! Here’s a great idea! Lend money to…well…people! But seriously, until there’s some velocity in the money supply, the banking sector will lie there like a soggy taco and BTO’s chart will continue to resemble the EEG of a cinder block.