Why Chimera's Shares Jumped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of mortgage REIT Chimera Investment (NYSE: CIM  ) were flying high today, gaining as much as 14% in intraday trading after the company announced that it will restate its earnings and lower its dividend.

So what: While neither of the two news releases today may sound particularly encouraging, they are being well received by investors, because they represent a big step towards clearing up significant uncertainty that's been hanging over Chimera. The company hasn't reported results since the third quarter of last year, and the stock has fallen close to 20% over the past year.

Perhaps more significant though, is the company's dividend announcement. As with fellow mortgage REITs -- and, really, REITs in general -- the dividend is a primary attraction for investors and, without reported results, investors may have begun to worry that Chimera wouldn't be able to continue to support its payout. While the $0.09 quarterly dividend does represent a cut of nearly 20%, it still provides investors with a more-than-comfortable 15% yield at today's prices.

Now what: This is legitimate good news for Chimera investors, and it's reasonable for shares to be reacting this way to the news. However, it's notable that while this clears up some significant near-term points of uncertainty for Chimera, like the other mortgage REITs, the company still faces the longer-term uncertainty around interest rates and how long spreads will be kind to this particular business model.

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Fool contributor Matt Koppenheffer does not have a financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool’s disclosure policy prefers dividends over a sharp stick in the eye.


Read/Post Comments (4) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 07, 2012, at 6:01 PM, plange01 wrote:

    cim will be well over $4 a share by the end of the year and it has a spectacular dividend!

  • Report this Comment On August 07, 2012, at 6:05 PM, plange01 wrote:

    cim will be well over $4 by the end of the year and it has a spectacular dividend!

  • Report this Comment On August 08, 2012, at 2:43 AM, fkim wrote:

    Matt, at the end of your article, CIM faces still a long term uncertainty. What's is a long term to you? We do not know what's going to be happen next two months. Do you? I've just got paid quarterly dividend $.09 July 27th on CIM. That is a hefty, and a lot of money! I'll be so pleased if I can get my return of any investment at above 10 % annually. You seem do not understand the power of compounding. CIM is a wonderful company to hold on and keep get the dividends.

  • Report this Comment On August 08, 2012, at 4:47 AM, RLR0528 wrote:

    I used the bounce on CIM to close my position. The press release was welcome due to the company's silence since June 16th on the accounting issues. However they still have not indicated when they will file the delayed reports or given an asset value per share update. Equal yields are available from mREITs like ARR without the accounting issues.

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