The pay-out ratio fell to 106.5% in the most recent quarter, implying that the trust will likely reduce its dividend payout in the future. Unfortunately for Chimera Investment, the trust's distributable earnings fell below the $0.33 per share quarterly payment in the second quarter, implying that the business paid out more than it earned. Chimera Investment's earnings available for distribution, which are important in establishing the trust's dividend safety, declined 43% YoY.Įarnings Available For Distribution (Chimera Investment Corp) Mortgage real estate investment trusts' portfolio and book values have been smashed in 2022 as credit spreads have widened, and interest rate volatility has increased at the short end of the yield curve.Īs a result, Chimera Investment's earnings available for distribution have consolidated over the last year, falling to $0.31 per share in 2Q-22. The central bank has already raised interest rates by 225 basis points this year, to a range of 2.25% to 2.50%, and the Fed is expected to raise interest rates by 75 basis points later this month, lowering Chimera Investment's net interest spread in the future. Indeed, given the moderate labor market strength in August and sustained inflation, the central bank is expected to approve the third super-sized interest rate hike at the end of September. However, threats to Chimera Investment's interest rate spread are rising as the central bank continues to raise interest rates. Net Interest Spread (Chimera Investment Corp) As a result, Chimera Investment's net interest spread declined 0.3 percentage points QoQ to 2.8% in 2Q-22. Having said that, the mortgage trust's financing expenses climbed from 2.3% in 1Q-22 to 2.7% in 2Q-22 as a response to the central bank's recent interest rate hikes. Typically, this business works only if mortgage trusts take on a significant amount of debt.Ĭhimera Investment generated a healthy net interest spread from its operations of buying, holding, and selling mortgage assets in the second quarter.Ĭhimera Investment's total portfolio gross asset yield was 5.5%, up 0.1 percentage point from the previous quarter. It purchases credit-financed mortgage assets with high yields and profits from the difference between the yield on those assets and its borrowing costs. Portfolio Overview (Chimera Investment Corp) Robust Net Interest Spread, But Interest Costs Are RisingĬhimera Investment, as a mortgage real estate investment trust with a big investment portfolio, generates profits exactly like any other mREIT. Chimera Investment PortfolioĬhimera Investment's portfolio was valued at $13.7 billion at the end of the second quarter, with the majority of its investments consisting of Residential Mortgage Loans.Ĭhimera Investment's portfolio as of Jconsisted of Residential Mortgage Loans (87% of the portfolio), Non-Agency Mortgage Backed Securities (10% of the portfolio), and Agency Commercial and Residential Mortgage Backed Securities (3% of the portfolio). The stock of Chimera Investment is a hold. Chimera Investment Corporation ( NYSE: CIM) now has a dividend yield of 15.9%, which could be a red flag given that the mortgage real estate investment trust could not cover its dividend with distributable earnings in the most recent quarter.Ī solid labor market and, as a result, another large interest rate hike might further stress the company's valuation in the coming weeks.ĭespite the fact that Chimera Investment is already trading at a significant discount to book value, it appears that the market, and not without cause, anticipates a change in dividend policy.
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