Not all dividends are created equal. Here, we'll do a top-to-bottom analysis of a company to understand the quality of its dividend and see how it's changed over the past five years.
The company we're looking at today is Chimera Investment
Chimera, along with competitors Annaly Capital Management
To evaluate the quality of a dividend, the first thing to consider is whether the company has paid a dividend consistently over the past five years and, if so, how much it has grown.
Chimera's dividend has been volatile but lately appears to have stabilized around $0.13.
For a mortgage REIT, the most important measure to follow is a company's interest rate spread. This is the difference between the rate the company borrows money at and the rate it lends money out at.
Source: S&P Capital IQ.
Chimera's interest-rate spread, although declining, is still very high and will probably remain so until interest rates begin rising again. As the Federal Reserve has stated it won't raise rates until 2013 at the earliest, you have some time before this will happen.
Source: S&P Capital IQ.
There are some alternatives out there in the industry. American Capital Agency
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Follow Dan Dzombak on Twitter at @DanDzombak to check out his musings and see what articles he finds interesting. He owns shares of Annaly Capital Management, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Chimera Investment and Annaly Capital Management. Motley Fool newsletter services have recommended buying shares of Annaly Capital Management. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.