Are the SEC Filing Concerns Overshadowing a Solid Business at Chimera Investment Corporation?

Source: Company

Chimera Investment Corporation (NYSE: CIM  ) has done a great job for shareholders over the last twelve months -- at least in terms of total return. Although many mortgage REITs had quite a terrible year, nothing seemed to be stopping Chimera.

Despite some unnerving history about Chimera's apparent inability to deliver SEC filings on time and massive accounting errors, the REIT offers good value for investors who have a desire for recurring dividends.

The mortgage REIT continues to pay a reliable and stable dividend of $0.09 per share quarterly and its share price held up nicely compared to other mortgage REITs which were thrown under the bus in 2013.

Profile
Chimera is a pretty young mortgage REIT, is externally managed by Annaly Capital Management and has a dividend history only dating back to 2008.

Source: Chimera Investment Corporation Supplemental Financial Information Q1 2014

Chimera largely invests in residential mortgage-backed securities, residential mortgage loans, real estate-related securities and various other asset classes.

At the end of the first quarter 2014, Chimera allocated a majority of its funds (48% to be precise) to residential mortgage-backed securities and loans.

Renowned value investor Cooperman is on board
Chimera probably started to attract mainstream attention as Leon Cooperman, renowned value investor and chief executive officer of Omega Investors, accumulated a large stake in the mortgage REIT back in 2013. Cooperman continues to hold about 66 million shares in Chimera Investment Corporation.

Though I am not sure that mortgage REITs indeed classify as value investments, it is at least interesting to see a successful fund manager accumulate this large a position in a cyclically volatile mortgage REIT play. Nonetheless, Chimera's total return performance over the last twelve months certainly proved Cooperman right.

Outperformance
Over the course of last year, Chimera has materially outperformed its sector peers who also pursue leveraged investment strategies in residential mortgage-backed securities.

In fact, Chimera is the best performing mortgage REIT by a wide margin when compared against Annaly Capital Management, American Capital Agency Corporation and Hatteras Financial with a total one year return of approximately 35%.

Dividends
Chimera has a relatively short dividend track record compared to Annaly Capital Management. The mortgage REIT started to pay regular dividends in 2008 whereas Annaly has a much longer operating history and its dividend payments stretch all the way back to 1997.

Though of younger age, one of the most noteworthy achievements of Chimera over the last couple of years is that the mortgage REIT churned out relatively stable dividends.

Many mortgage REITs have adjusted their dividends in order to account for higher interest rate volatility and 2013 was a particular brutal year for the mortgage REIT sector. Higher interest rates translate into lower values for mortgage-backed securities and pressure on the book values of mortgage REITs.

As a result of stronger interest rate headwinds in the mortgage investment business, Chimera reduced its quarterly payout to shareholders from $0.14 per share for Q1 2011 to $0.09 per share for Q2 2014. Even though dividends were cut by a 36%, the mortgage REIT has held its dividend steady at $0.09 per share since July 2012.

Annaly Capital Management, for instance, reduced its quarterly dividends from $0.55 per share in July 2012 to $0.30 per share in Q2 2014 reflecting a downward adjustment of 45%.

In addition to being a steady dividend payer, Chimera actually squeezed out a special dividend in the amount of $0.20 in January 2014.

In fact, if Chimera continues to pay out a steady $0.09 quarterly per share over the next twelve months, investors get to enjoy an eleven percent yield.

A word of caution
Not all is sunshine when it comes to Chimera. Even though the company has outperformed its peers and convinces with a non-volatile dividend, the mortgage REIT had its fair share of problems.

Much has been said about Chimera's propensity to miss SEC filing deadlines and the overstatement of Chimera's earnings at the time of early existence. The good thing is, that Chimera now appears to get its house in order as it delivered the required 2013 filings at the beginning of June and its 10-Q for the first quarter 2014 at the beginning of July.

The Foolish Bottom Line
Though the company clearly needs to step up its accounting and filing game, Chimera is not all bad.

So far, Chimera has done a good job in delivering steady dividends and actually has had more of a stable dividend record than industry leader Annaly Capital Management since 2012. In addition, Chimera continues to offer a high 11% dividend yield.

Investors who can get on board with Chimera's filing issues and short operating history might very well consider Chimera as a high-yield, yet risky, income play and invest alongside a renowned value investor.

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