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You Still Can’t Count on This 11% Yielder

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Way back in 2018, I wrote about Chimera Investment Corp. (NYSE: CIM) and warned investors that its then $0.50 quarterly dividend was likely to be cut. Sure enough, in June 2020, the dividend was slashed 40% to $0.30 per share.

I suspect another dividend cut may be on the horizon.

Chimera is a mortgage real estate investment trust (REIT). It borrows money in the short term and lends it out in the long term at higher rates. The difference is called net interest income (NII), and it’s the way we determine a mortgage REIT’s ability to afford its dividend.

Chimera’s NII is inconsistent. We’d prefer to see it grow every year, but Chimera has been unable to do that.

Here’s Chimera’s NII over the past few years:

  • 2018: $594 million
  • 2019: $602 million
  • 2020: $514 million
  • 2021: $611 million
  • 2022 estimate: $553 million.

The REIT seems to alternate between growth and decline. That’s not good, and Safety Net penalizes companies with negative growth. It’s a sign that the dividend may be unsustainable in the future.

Fortunately, Chimera’s NII is high enough to afford the current dividend. In 2021, it paid $372 million in dividends. This year, it’s forecast to pay $313 million. So the company has plenty of NII with which it can pay the dividend.

But Chimera has a dodgy dividend history. In fact, the dividend is currently lower than it was in 2009.

Chimera's Dividend
You can see in the chart how often the company lowers the dividend. When the going gets tough, Chimera cuts the dividend.

As mentioned, Chimera presently generates enough NII to pay the dividend. But its checkered history of generating inconsistent NII and consistently lowering dividends means that you cannot rely on the dividend to remain at the current levels in the future.

Dividend Safety Rating: D
Chart:
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