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
Industry
Chimera, along with competitors Annaly Capital Management
Chimera Investment Corporation Total Return Price Chart by YCharts
Dividend
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 Investment Corporation Dividend Chart by YCharts
Chimera's dividend has been volatile but lately appears to have stabilized around $0.13.
Sustainability
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.
Alternatives
Source: S&P Capital IQ.
There are some alternatives out there in the industry. American Capital Agency
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