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Cherry Hill Mortgage Investment Corporation: Margin Of Safety


  • Cherry Hill Mortgage Investment Corporation, a real estate finance company that acquires, invests, and manages a portfolio of mortgages.
  • The economic slowdown has affected the business severely, as reflected in the stock price (corrected by ~50%).
  • Bullish on Cherry Hill, as the company is moving towards conservatism.
  • I do much more than just articles at The Lead-Lag Report: Members get access to model portfolios, regular updates, a chat room, and more. Get started today »

Cherry Hill Mortgage Investment Corporation (NYSE:CHMI) is a publicly-traded residential real estate finance company. The company focuses on acquiring, investing in, and managing residential mortgage assets in the United States. The company started its operation in 2013 following its initial public offering (IPO). The company generates most of its income from real estate-related properties, thus qualified as REIT and taxed accordingly.

The company operates in three segments:

  • Investments in Residential Mortgage-backed securities (RMBS)
  • Investments in Servicing-Related Assets
  • Other Investments in Real assets.

The company's portfolio composition as on 31st March 2020.

Equity Investment Composition

Aggregate Investment Portfolio Composition

Performance Graph:

Cherry Hill is externally managed and advised by Cherry Hill Mortgage Management, LLC ("Manager" or "CHMM"). CHMM is responsible for the company's investment strategies and decisions and its day-to-day operations. The company for the past five years has performed in line with the related indices such as Russel 2000, SNL Financial REIT, and S&P 500.

Factors Impacting CHMI's Operating Result:

The company's income is generated primarily by the net spread between the income it earns on our assets and the cost of financing, also supported by the hedging activities.

The company's net income primarily includes:

  • Actual Interest payments on RMBS.
  • Net Servicing fees on Mortgage servicing rights (MSR)

Factor impacting its net income:

  • Market Interest rates
  • Prepayment speeds
  • Servicing cost

The company has been very prudent in selecting and managing its portfolio with a focus on achieving a consistent spread. During the past few years, the company's average net yield spread has been stable.

Quarter Ended

Average Asset yield

Average cost of funds

Average Net Interest rate spread

December 31, 2019




September 30, 2019




June 30, 2019




March 31, 2019




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This article was written by

Michael A. Gayed, CFA profile picture
Michael A. Gayed is portfolio manager, and author of five award-winning research papers on market anomalies and investing. He has a BS with a double major in Finance & Management from NYU Stern School of Business, and is a CFA Charterholder. Michael runs the investing group The Lead-Lag Report, focused on helping investors outperform in all market conditions. It offers a tactical, data-driven approach to investing, to achieve long-term success even in the face of uncertainty. With increasing market volatility, it's essential to understand risk-on/risk-off signals, seize high-yield opportunities, and leverage award-winning research to maximize returns. Learn More.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

This writing is for informational purposes only and Lead-Lag Publishing, LLC undertakes no obligation to update this article even if the opinions expressed change. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. It also does not offer to provide advisory or other services in any jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Lead-Lag Publishing, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

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Comments (13)

@Michael A. Gayed, CFA Do you have any idea why this REIT does not have either factor grades or dividend grades on the SA summary page? That seems a little ominous. Lack of information leads to poor decision making...
MORL was a large mortgage REIT and they were saying the same positive stories. Out of nowhere they shut down and the stockholders lost everything. The stock was worthless!
Morl, I believe was a leveraged etn, in the mortgage reit space,not a mortgage reit.
Author, what about dividend sustainability going forward?
Basileus profile picture
@joshvegas the most recent $0.40 dividend was more than covered by core earnings for the quarter, so I would expect the company to be able to maintain its dividend going forward. The huge loss was mostly due to unrealized losses on the MSRs.
I think the cut last year was very timely for CHMI. I will note that last earnings call, management made it seem like prioritizing cash was important, and hinted that they would do another cash/stock dividend before a cut which comes with some dilution.
So with the common div being cut, what is the strength or how secrue isthe div both common and pref going forwdard? This is what we are interested in.
Basileus profile picture
The current dividend was fully covered by core earnings so should be sustainable. But I'm not crazy about MSRs in general and especially today. I think there are more attractive/safer options in this space.
Are you talking about cut in last September? Next dividend is not yet announced
Fortunate One profile picture
This stock volatile. It has, in the last year, gone from 18 to three and a fraction and sits now at 9.30. The div was cut in August and is now paid 50% in ...more stock! I like it, I am currently long
But lets get real... the risk is not for all but the most intrepid. Beware.
Look at the series A preferred, much better risk adjusted return.
Very low daily volumes. Take care there
I'm somewhat surprised that you never mentioned the word dividend in the article.This is after all what most reit investors are concerned about.
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About CHMI

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