I feel like lately I’ve been on a high yielding binging spree… First I recommended LINN Energy, and now comes another semi-controversial company who’s been on my radar for a few years but I’ve always feared getting into: Chimera Investment Corporation (NYSE: CIM).
Lets start with a quick introduction…
CIM is a mREIT (mortgage REIT) that’s externally managed by Fixed Income Discount Advisory Company (FIDAC) which is owned by Annaly Capital Management (NYSE:NLY). The whole purpose behind CIM really is to allow NLY to invest in riskier instruments that aren’t guaranteed by government equities or groups like Freddy Mac or Fannie Mae (such as residential mortgage-backed securities, residential mortgage loans, real estate-related securities, etc. rather than physical real estate).
The parent company
Annaly Capital Management (NLY) owns, manages and finances a portfolio of real estate related investments in the United States. Even though it had a dividend cut earlier in the quarter, there aren’t many REITs left out there that aren’t cutting their dividends… With interest rates moving higher and taper possibilities, these investment vessels are facing some rough times. However, this is a company with a market cap of about $11B and an enterprise value of over $93B trading at around $11.50 with an EPS of $3.48(ttm) and thus P/E of 3.34(ttm). Even after the dividend cut, it’s dividend is around the 12%.
With the announcement of Janet Yellen as the new Fed chairwoman (sounds weird but cool non-the-less) NLYs position changed dramatically. Yellen is a better communicator, a bigger believer in the slow progression of things which almost guarnatees the FED won’t taper anytime soon, and even if it does, Yellen wouldn’t allow the “taper panic” to happen by being more transparent (hopefully) and thus helping companies like NLY and CIM to take measurable steps.
How I see this stock
Even though it’s had to leap over a few hurdles in the past few months, ever since I started following this stock back in 2010, It sat on the same range, around the $2.90-3.10. As crazy as it may seem, if you look at this stocks past, it’s consistently maintained itself around the $3-$4. Back in 2012, the stock took a serious hit after a year long investigation by the SEC found inconsistencies in earnings reports due to different interest rates in different loans and mortgages. CIM made it all the way under $2, but even then bounced right back.
with a $3.11B market cap, CIMs current EPS (ttm) is $0.11 with a P/E of 27.55. While the P/E is relatively high, this is the kind of company you don’t expect profits from by the increase in value of the company, but rather the high 12% annual yield, which is why I called it a “money holder”. The likely hood of it making any serious profit by increase in value isn’t very promising, however as long as it stays as stable as it has been in the past few years, it’s an easy 12%.
Yes, this company has a few sketchy red flags… There was a time where they hadn’t released a single financial document including quarter reports and annual reports. It almost got kicked off the NYSE for not complying with the publishing of these financial documents… and honestly, the main reason I didn’t get into this stock three years ago was exactly because of this. However they always seem to get their things in order when they really have to.
Yes, it’s just not good practice to invest in a company that’s not only as speculative as this but also as badly managed and the lack of transparency here and there is definitely a big red flag. However, the growth opportunities this company has now that the it seems like the taper isn’t going to happen anytime soon, CIM has an opportunity to raise yield rather than lower it.
The bottom line
If I had some more capital to invest, I would increase my position in CIM. Especially if it happens that the stock finds itself in a dip under the $2.90s. Either way, for three years the dividends levels were very consistent, and even with dividend cuts, the balance between the stocks price and the dividend yield stayed consistent. As far as stock price, it’s also maintained a strong $3 position, and The Street even has a price target of around $3.70s, a 20%+ increase, so where can this go wrong?
Disclosure: I am long on CIM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with the company whose stock is mentioned in this article.