Will Chimera Move Higher in the Second Half?

With half of 2012 in the record books, it's important to take a look at whether the stocks that interest you can live up to their full potential. By making sure you know about a company's future plans and possible challenges, 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). As we saw in our look at Chimera last month, the mortgage REIT has lagged behind some of its peers, as its focus on non-agency mortgage-backed securities hasn't delivered an advantage. But will that underperformance last? Let's take a quick look at Chimera's prospects for the rest of the year and beyond.

Stats on Chimera Investment

Source: Yahoo! Finance.

How will Chimera Investment do the rest of the year?
From one perspective, there couldn't be a better economic environment for Chimera. The economy is sluggish enough that the Federal Reserve is reluctant to hint at short-term interest rate hikes anytime in the next couple years, giving not only Chimera but also agency-focused American Capital Agency (Nasdaq: AGNC) and Annaly Capital (NYSE: NLY) a bunch of time to reap the benefits of interest rate spreads. Yet at the same time, the economy isn't so slow that the Fed will necessarily take measures to cut long-term rates as well, which would cut spreads and make mortgage REITs like Chimera less profitable. That's a big part of why you're seeing American Capital Agency and Two Harbors Investment (NYSE: TWO) near new highs for the year.

But Chimera may not see its stock go anywhere until it gets its financial reporting in order. If the company doesn't file its second-quarter report on time, it would mark the third straight report for which it's late. Although the company is trying to assure investors that nothing's amiss, too many accounting-related scandals have hit other companies for shareholders to put up with a lack of reporting much longer.

Moreover, to go higher, Chimera needs to demonstrate its ability to keep its dividend at current levels. After losing half their payout in the past two years, the shares have also lost about half their value. With a near-perfect environment for the stock, Chimera has to prove it can rebound or else investors may never regain confidence in the mortgage REIT.

Chimera pays a nice dividend, but it's not the only stock for dividend investors. Get more ideas of stocks that pay strong dividends from the Motley Fool's special report: "Secure Your Future With 9 Rock-Solid Dividend Stocks." As the name implies, we're going to give you access to some of the best dividend companies in the world, and best of all, this report is completely free, so don't miss out!

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