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Investors Are Missing Out On Chimera's 11% Dividend Yield

Apr. 03, 2022 7:52 PM ETChimera Investment Corporation (CIM)37 Comments
Mark Pierce profile picture
Mark Pierce
59 Followers

Summary

  • Chimera manages a portfolio of leveraged mortgage assets dominated by securitized mortgage loans.
  • Over the last decade, households have significantly reduced their exposure to mortgages, and with interest rates rising, convention would suggest this trend would continue.
  • However, home prices are likely to continue to rise, making households more likely to increase their exposure to mortgages, rather than diminish it.
  • Chimera’s fundamentals show that the company has the ability to increase dividends in the next quarter, having dramatically grown its warchest in the last 2 years.
  • Chimera is trading at its lowest levels in 2014, providing investors with an attractive margin of safety.

Finance background

honglouwawa/E+ via Getty Images

Chimera Investment Corp. (NYSE:CIM) operates a somewhat risky but profitable portfolio of largely securitized mortgage loans. The company has been profitable at a time in which Americans have dramatically reduced their exposure to mortgages, despite mortgage

This article was written by

Mark Pierce profile picture
59 Followers
I worked as managing director of HSBC Asia for many years and developed an intuitive understanding of markets and investments. Now mostly retired, I invest as a hobby and follow trends in cypto currency as well as the general financial markets avidly. I have no position on any of the stocks I write about, I write purely for educational purposes.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (37)

V
excellent article - puts it into perspective
R
Why are CIM preferreds down, especially CIM-PA?
r
@Rellif Everything is down. CIM prefs may be falling with the tide. Some systemic risk may be factored in, CIM has above average risk for an REIT that's why they pay a higher dividend.
As rates rise the floating rate funds pay higher dividend, catching up to the fixed rate CIM-A so the gap between them narrows.
7422981 profile picture
14+% yield, bought some at $9.30. The market of falling knives, is cutting through the long term holders fast.
G
@7422981 I did well on mREITs when they were selling at a discount in 2020. But today their dropping book value means those 14+% yields mean nothing if the BV (and hence stock price) drops more.
7422981 profile picture
@GuyRien1 Book value should level out soon. I don't invest for yield, I only trade for gain. I think this trades back towards $10 soon, the recent selling isn't due to anticipated drop in book value, it is reverse money flow with sellers that must sell due to redemptions, leverage or de-risking.
7422981 profile picture
@GuyRien1 Sold $9.90. Will buy back in below $9.40.
jack kreg profile picture
Yield has grown from 11% when article was written, now at 13%.
too late to sell, is it time to buy yet?
My last purchases:
Aug 2020, $8.40
March 2020, $6.90
t
@jack kreg I was adding again today.
t
@tennis111 And again today.
W
@jack kreg yield is rising almost every day ;).
jack kreg profile picture
seems like a great time to be investing in 5% residential mortgages.
Isn't that what CIM does?
I dont figure that mortgages are going to 8%, anytime soon.
I'm buying CIM under $11, with it's nice 12% income!
t
@jack kreg I’ve been steadily adding, also. I hope it pays off in the future.
Retire2020 profile picture
Don't get it. Why is this baby dropping like a rock. P/E ≈ 6.19; P/B ≈ 0.7; Div/EPS ≈ 0.54; Div/FCF ≈ 0.69. In addition, Morningstar has a 4star rating with FV of $14.81 and Market analysts has an average PT of $14.5.
V
Me thinks exactly the opposite. Interest rates will creep up, the current housing bubble will deflate, mortgages will come under stress, profit margins will be squeezed. The current sell-off in mortgage REITs came for a reason. It's a re-pricing of expectations and CIM is no different.
t
I’ve been adding, but CIM is getting hammered. It has dropped below 11. Wow.
k
@tennis111 As mortgage rates continue to rise (now pushing 5%) I think CIM will test new 52wk lows.
t
@kedzie114 Yup. It’s there. It hit 10. 98 yesterday, and a new low of 10.97 this morning.
I hold CIM in my portfolio, but its price has dropped quite a bit since purchase. I believe it will take at least two years to break even. In the meantime, the dividends are good.
s
Mr. Pierce:
Aren’t you concerned about cash flows declining as a result of increased defaults? How about elevated commodities prices staying that way for a while? The fed’s aggressive interest rate hikes? Consumer discretionary income decline and thus liquidity issues in the mortgage markets? An impending recession? EXISTING HOME SALES declining due to the threat of a recession? Not to mention that the mortgages are “securitized” which means bundled and thus if the borrowers ge t into trouble due to the good but not excellent quality of the bonds or mortgages it could effect future cash flows? There are a lot of issues weighing on this company and as such the bond markets are hardly going to prosper over the next twelve months. Existing home sales which is some eighty percent of the market may contract if only marginally does not present a bullish case here. I’m short. It’s a great long if one can purchase at a forty to fifty percent discount to book value. This way if the dividend is cut investors will be largely uneffected. Sconch.
r
@sconchee Homeowners don't default unless they are underwater on their mortgage. With rising prices that's not a problem now anybody who can't afford their house would sell rather than default. Only a large price drop would trigger a default wave. The people overpaying now have disposable income, they are not sold to people who can't afford a house like in 2008.
G
@sconchee
Checkout VICI, a profitable specialty REIT that pays 5% dividend and destined to grow as more states legalize casino's and sports betting..
s
Test
j
It's a REIT. The dividends are not qualified and are thus taxed as ordinary income. They're even taxed in retirement accounts now. You're better off seeking HY issues that meet your criteria where the dividends are qualified. There are more than enough of them.
J
@justzman you don't pay taxes on anything in an IRA until you take a withdrawal
Y
@justzman - How is it taxed in your IRA?
G
@justzman

“If you own REITs in [a traditional] IRA, you won't have to pay taxes on that income until you take money out of the IRA,” according to financial journalist Reuben Gregg Brewer. “If you own the same REITs in a regular brokerage account, you'll pay taxes in any year you receive distributions.
W
You don’t have to go back to 2014 to find a lower share price. Share price was lower much of 2020 and into 2021 when I was buying. Dividend is great, but was much higher prior to 2020. REITS cut dividends when under stress as CIM was in 2020. This is not a buy and forget investment. That said I agree at the current share price and dividend we are compensated for some risk and I am picking up some shares.
r
@WolfpackWayne I do like to gamble sometimes.
thebellsareringing profile picture
The performance of CIM should be improving this year.
ckarabin profile picture
Why are people so reluctant to take advantage of this fat yield with extreme high coverage to boot?
G
@ckarabin because of the stock price sensitivity to BV. 03/22 BV is now $10.18 which will wipe out a further 5 to 10% which means 2 years of yields since article published.
ckarabin profile picture
@GuyRien1 But earnings are what matters, not book value. If they earn it, they can pay it out. They earned 39 cents, they pay out 33 cents, which is a 13% yield. Sold! I'll take it!
G
@ckarabin but eventually you are going to sell the stock and if it's down 20% ..
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