Why Chimera's Looking Lackluster in 2012

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As we approach the halfway point for 2012, now's a good time to look back at what's happening with the stocks that interest you. By making sure you know the important things that a company accomplished -- as well as the setbacks it experienced -- you can make a better decision about whether it's a smart investment for your portfolio.

Today, let's take a look at Chimera Investment (NYSE: CIM  ) . The real estate investment trust is in the red-hot mortgage REIT industry, but it takes a slightly different approach from most of its peers, focusing on mortgage-backed securities that aren't backed up by agencies like Fannie Mae and Freddie Mac. Continuing low rates have supported the industry overall, but Chimera hasn't benefited as much as some of its peers. Let's take a quick look at how the stock is doing so far this year.

Stats on Chimera

2012 YTD Return 4.1%
Market Capitalization $2.59 billion
Current Dividend per Share, Most Recent Quarter $0.09
Change in Dividend, Past 2 Years (50%)
Forward Dividend Yield 14.3%
CAPS Rating ****

Source: S&P Capital IQ.

Why hasn't Chimera climbed higher?
Chimera's 4% gain over the past six months may not seem all that shabby, but it pales in comparison to the larger gains that some of its fellow mortgage REITs have enjoyed. Both Annaly Capital (NYSE: NLY  ) and American Capital Agency (Nasdaq: AGNC  ) have generated double-digit percentage gains, with the latter up more than 25% (including dividends).

Much of the disparity comes from Chimera's differing business model. Investing in non-agency debt, Chimera makes up for the relatively higher risk of its securities by taking on less leverage. By contrast, Annaly, American Capital, and ARMOUR Residential (NYSE: ARR  ) have used far greater leverage but stick to agency-backed mortgage securities. The current interest rate environment favors leverage, explaining some of the outperformance of higher-levered companies.

Moreover, investors appear to be shying away from the stock, perhaps because it has been late in filing two consecutive quarterly reports. Chimera doesn't expect material problems, citing only difficulties in applying generally accepted accounting practice standards to some of its non-agency debt. Still, the delay reinforces the risk of these securities, which can be harder to value than their agency counterparts.

Even though the stock still has a very attractive yield, Chimera's dividend cuts have been problematic. Wall Street analysts are abandoning the stock, with one analyst citing the likelihood of further cuts as the REIT "recognizes losses more aggressively in its subordinated-nonagency investment portfolio."

Until the company gets its feet under it, shareholders should expect further turbulence. To get some ideas for dividend stocks with more stable prospects, check out The Motley Fool's special report on dividends. Inside, you'll discover nine stocks that will help you secure your future. It's free, so click here and get your copy today!

Click here to add Chimera Investment to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. The Motley Fool owns shares of Annaly Capital. Motley Fool newsletter services have recommended buying shares of Annaly Capital. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.

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Related Tickers

10/26/2016 4:00 PM
CIM $15.74 Down -0.03 +0.00%
Chimera Investment CAPS Rating: ***
AGNC $20.26 Up +0.08 +0.00%
American Capital A… CAPS Rating: ***
ARR $22.79 Down -0.15 +0.00%
ARMOUR Residential… CAPS Rating: ***
NLY $10.41 Up +0.04 +0.00%
Annaly Capital Man… CAPS Rating: ****