For the second quarter, Chimera reported core earnings of $145.6 million, or $0.14 per share. Core earnings approximate distributable income, which is what investors in high-yield mortgage real estate investment trusts should focus on.
While Chimera's earnings show a sequential and year-over-year downturn, earnings can vary markedly from quarter to quarter in the normal course of business. But that also means the dividend fluctuates, and Chimera distributed $0.13 per share in the second quarter, compared to $0.17 and $0.14 in the year-over-year and previous quarters, respectively. That dividend still annualizes to more than 16%.
The company has maintained a relatively low level of leverage and focuses on earning a high interest rate spread, compared to peers.
Debt to Equity
Average Spread Q2
American Capital Agency
ARMOUR Residential REIT
Source: Capital IQ, a division of Standard & Poor's.
Chimera's spread is down 121 and 136 basis points sequentially and year over year, respectively. But ongoing business conditions look positive for Chimera and its sector peers. Chimera CEO Matthew Lambiase noted, "Attractive investment opportunities are developing in these market conditions, and we believe that the company is well-positioned to take advantage of them."
That sentiment seems to echo what Annaly CEO Michael Farrell stated in that company's conference call for the most recent quarter. Farrell said, "The long-term implication of these conditions is that the very favorable operating environment in which we find ourselves is likely to persist for a significant period of time."
Those favorable conditions are leading mortgage REITs to raise more capital and allowing new companies to IPO. Recent quarters have seen Chimera, Invesco Mortgage Capital
Foolish bottom line
Chimera's quarter and the ongoing market malaise should give investors reason to consider mortgage REITs for their portfolio. With their hefty yields, mortgage REITs provide some income stability in tough market conditions. And that's why I like them.