For active investors, finding a solid investment opportunity can be very difficult and time-consuming. Many people start by reading financial articles and analyst opinions, but I find it helpful to start at the horse's mouth and dig right into a company's 10-K. This document is straightforward, no fluff or personal opinions, just facts. Today, I will be sharing some of the points I found to be important from Chesapeake Lodging Trust's (NYSE: CHSP) 2011 10-K.

Understand the company
Chesapeake Lodging Trust is set up as a real estate investment trust that invests strictly in hotels. The company was started in June 2009 and currently owns 12 hotels throughout the United States. It is focused on upscale hotels in major business and convention locations but will also purchase select service and extended stay hotels if the property meets specific criteria.

Since Chesapeake is a new company, the revenue stream may look unbelievable on the surface, but this is a great example of why taking your time and reading the 10-K is important. During 2011, the company posted revenue of $174 million, up from $54 million the previous year. From these numbers alone it looks as if Chesapeake killed it in 2011. But the $54 million in revenue for 2010 came from only five hotels reporting for just six months of the year. Also, posted revenues for 2011 only represented five hotels for the full year and six for half the year (one property was not open until 2012). This kind of information can only be found in the 10-K and will really make a difference to your investing thesis going forward.

Big dividend
Next, I noticed that in 2011 Chesapeake earned $0.30 per share compared to -$0.07 per share in the prior year. An issue arose when I noticed that in 2011 the company paid out $0.80 per share in dividends. This gives Chesapeake a 5% yield, which is very nice when the S&P 500 average yield is only 2%. But how can a company that only made $0.30 per share pay out $0.80 per share?

One way is share dilution! The company went from 11 million shares in 2010 to more than 29 million shares outstanding in 2011. In the process, Chesapeake raised $230 million in 2011. But in order to raise that money, shareholders were diluted by almost a third. Again the importance of reading the fine print arose when I read that Chesapeake expects to meet long-term liquidity requirements by issuing new debt and more stock. While this can be common practice for young organizations, what really worried me was that the board of trustees has been authorized to issue up to 400 million common shares. That is almost 13 times the number of current shares outstanding.

Since Chesapeake's REIT structure forces it to pay out a large portion of its profits, if it wants to continue acquiring new hotels and pay out such a high dividend, it has one of two options: Continue issuing more shares, further hurting current and future shareholders, or issue more debt, adding to the $400 million the company is already responsible for. Either option is not good for shareholders.

Foolish take
Remember the time spent reading a 10-K thoroughly can be one of the best financial decisions you ever make. Chesapeake's 5% dividend yield is the perfect example; it looks nice on the surface, but when you start digging deeper, the stock looks downright scary. I will be giving Chesapeake a thumbs-down CAPScall and warn investors to stay away. Although Chesapeake is not a buy, check out this free report highlighting "9 Rock Solid Dividend Paying Companies" that you should look into today. Click here.