Zacks highlights commentary from People and Picks Member «MightyMo».
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CIM: Will a nose bleed dividend yield scare you away?
Bulls make money, Bears make money, but Pigs get RICH!
I’ll confess. I carry a number of ‘safe’ dividend stocks in my ira account. I like the ones that have a good combination and history of dividend yield, consecutive years of paying a dividend, and dividend increases along with a good payout ratio and companies with a good history of cash flow. Any growth potential is a plus. Duh! Doesn’t everybody. As to cash flow, I do look at that as the company has to have real cash available to pay dividends, the other manipulatve data accounting figures don’t mean much to me.
However, I’m ready to ‘kick it up a notch’. I’ve come across a stock named Chimera Investments (CIM) . It’s currently priced around 3.90. CIM is a REIT currently yielding over 14%. A value investor or a fundamentalist would look at the yield and immediately and incorrectly determine that there is something wrong with the security. However, thank the lord, I am not a fundamentalist who looks at voodoo makeup numbers invented by economist and accountants and analysts nor am I a value investor who’s god is Benjamin Graham who created the moniker Mr Market (a truly incorrect profile of intelligent participants in wallstreet) and the ‘son of god’, Warren Buffet and their many followers.
Instead, I look at the facts and the reality of what’s actually going on in the market and how CIM is acting. CIM, first of all is the sister stock of Annaly Capital (NLY), managed by the god of REIT’s, Mike Farrell.
“Mike Farrell, who is CEO… can handle every interest rate hike and every interest rate cut. He’s navigated through everything. He even navigated through the worst torture period for this sector and came out smelling like a rose.”
Second, CIM has ongoing insider buying that has carried on into this year. The insiders must like what they see now and into the future. In FACT, there hasn’t been insider sells going all the way back to 2009.
Third, for those that follow P/E’s. CIM has a P/E of only 6! For the hell of it, the industry P/E is 28.
Fourth, CIM invests in mortgage backed securities. The profit is the spread between what CIM borrows the capital for and what it charges. The concern of the naive is that if interest rates go up, CIM’s spread will lessen. Here is what one wag had to say about this subject.
“What about changes in interest rates? If long term interest rates fall or short term interest rates increase, this could narrow the spread that Chimera is able to make. On the flip side, if interest rates rise, Chimera’s investment income may also rise. In their most recent 10Q, Chimera estimates that a 75 bps (.75%) increase in interest rates would result in an increase of interest income by 5.52% while decreasing the overall portfolio value by 3.79%.
This rise in income will offset some of the losses attributed to a decrease in the value of Chimera’s future cash flows. With Chimera trading at such a low price in comparison to its dividend, it is possible that the stock price may still appreciate, even in an environment with increasing interest rates due to increased confidence within the real estate sector.”
Fifth, the company has beaten earnings estimates 6 out of the last 9 quarters.
Sixth, the company grew profits by more than 64% in 2010.
Seventh – Discount. Chimera trades at a price-to-projected-earnings ratio of 4.8, a 92 percent discount to its REIT peer average
Eight – Short history, but hasn’t missed a dividend yet.
Ninth – For a low price stock, institutional ownership is 87%. Pretty impressive for a low price stock.
Tenth – What are you waiting for?
That said, if you want a ‘safer’ stock with about the same yield, then look at NLY. CIM was spun off NLY in 2007. CIM has growth potential, NLY does not. NLY however has securities back by uncle sam. I own NLY by the way.
The most recent picks by «MightyMo» are:
A buy rating on Dendreon Corp. (DNDN)
a buy rating on iShares Emerging Markets ETF (EEM) and
a buy rating on Intuitive Surgical (ISRG).
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CHIMERA INVEST (CIM): Free Stock Analysis Report
DENDREON CORP (DNDN): Free Stock Analysis Report
INTUITIVE SURG (ISRG): Free Stock Analysis Report
ANNALY CAP MGMT (NLY): Free Stock Analysis Report
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