Chimera Investment Corporation (CIM) is a real estate investment trust (REIT) that specializes in residentail mortgage backed securities. This play is very different than the rest of the dividend portfolio that I invest in and recommend in that this investment definitely has a stricter time table.
Currently, Chimera yields over 14% on its dividend payout. With the entry point I used, I’m yielding more like 16% on my initial cash outlay.
Chimera essentially borrows money at the current ultra low rates and earns a return on the securities it holds in its portfolio. The spread between these rates is what generates their income. The risk here is that rates will rise and thus hurt their spread. This is a very common view and definitely is holding the share price down.
I’m probably in the minority, but I don’t think there is any chance that rates rise as a result of Federal Reserve policy in the near future. Thus, this is essentially a bet on continued low rates. As such, this may or may not be an investment you’re interested in. As I said, this is different than the other positions in the portfolio.
The current Fed policy is to avoid a deflationary spiral in the economy at all costs. To prevent this, rates have been near zero for several years and additionally, the Fed has implemented massive quantitative easing. The Fed will stop QE and unwind the Fed balance sheet prior to raising rates in my opinion, and I don’t think we’re even at that point yet. As such, I think there are several years of rates staying where they are. As such, I plan to collect 14-16% from Chimera until that situation changes.
Chimera is a buy as long as there is no sign that the Fed is about to raise rates.
Chimera is a buy anywhere under $4.00 a share. At $4 / share, the yield is 14% (although the payout fluctuates somewhat as many REITs do). Under, $3.50 a share, I’m backing up the truck. At $3.50 / share, the yield is 16%.