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Chimera: An Excellent Pick for 2012

March 14, 2012 | About:
This is an overview of how Chimera (CIM) remains in the eyes of investors and the various actionable strategies that can be used to gain from this stock depending on the length of time you are willing to invest in it. In order to come up with an honest overview, such items as dividend yield, dividend history, payout, cash flow, profitability and competitors need a close assessment. Then, there is advice on the various actions to take based on your current position on the stock as well as the expected dividend yield in 2012.

An Overview of Key Analytical Metrics

The company’s dividend declined from $0.51 to $0.44 from the year 2010 to the year 2011 which is reflected by a decline in dividend yield from 17.20% to 14.70% over the two periods. While the dividend yield is quite promising, a drop of about 12% raises serious questions considering no major event took place to warrant the fall. The high dividend yield coupled with a low dividend rate means that Chimera stock is very attractive in the market for capital gains.

Looking at the historical dividend payments by Chimera, the trend is very good except in 2009 and the current fall. Having risen over the years from $0.025 in 2007 to $0.62 in 2008, the dividend paid fell in 2009 to $0.43 and went up again in 2010 to $0.51. The fall in 2009 goes down due to the Global Financial Crisis that hit the globe in 2008. I believe the more recent declines are likely the company finding a balance between dividend payout and meeting the company’s financial demands.

The company’s payout of about 80% is one of the best you can get from any company. The only question that remains is to see how sustainable this is. For a company that is competing with world giants, it is important to try to retain a good chunk of the profits for reinvestment for the purposes of the long-term future.

Let us look at Chimera profitability now. It is not one of those companies that records billions of dollars. The profits vacillate between $400 million and $500 million including over and above the two figures. The company reported a loss in 2008 owing to the financial crisis that rattled the world, but came back strongly in 2009 to record profits exceeding $329 million and further improved in 2010 recording profits of over $532 million, quite a significant growth of about 60%.

The cash flows of the company have not been very impressive. In 2009, the company reported net cash outflows of over $3 million with the figure rising to over $17 million in 2010. This is close to 600% increment an in as much as the net outflow of $17 million seems to be small, the rate at it which it grew is shocking keeping in mind that the year was the most profitable in recent past.

The Competitors

The prime competitors of Chimera are Annaly Capital Management (NLY), Capstead Mortgage (CMO) and MFA Financial (MFA). Annaly is the biggest of the four in terms of market capitalization holding close to $16 billion compared to the second Chimera, which has only about $3 billion. Despite the huge market cap, Annaly still lags behind Chimera in terms of operating margin at about 62% while that of Chimera is about 90%. The company with the best operating margin in this list of prime competitors is MFA , which is just but slight at around 92% while Capstead has about 90.7%, which still lies ahead of Chimera.

However, in terms of forecasted financials, Chimera seems to have the best especially with the price earnings growth ratio (PEG) of 3.15 expected within the next five years, compared to all the rest of its main competitors who have less than three all across.

NLY has the best price-earnings (P/E) ratio of about 44 compared to the rest that have less than 10, with Chimera having the least at only about five times. This explains why Chimera has a promising PEG ratio given that its P/E is way below that of the industry which stands at about 17 times.

One area that Capstead dominates is the earnings per share (EPS) amount. It has about $1.75 compared to the rest that have a below $1.00 score. All the EPS are above that of the industry that stands at $0.37 apart from Annaly, which has a EPS of the same amount.

Chimera 2012 Dividend Yield Outlook

According to the analytical measures assessed, it is quite clear that the company will be paying a dividend of $0.11 per quarter through the four quarters of the year. This is established from the forward annual dividend rate of $0.44 represented by a yield for the same of 14.70%. However, going forward, as seen in the PEG ratio, share price should continue going up way ahead of the rest in the industry. This will result in an increased dividend yield. This is further going to boost the company’s P/E ratio to be in tandem with that of the industry or thereabouts.

The Verdict

Taking into consideration all matters as presented in this overview, I expect Chimera to grow further. I believe much of this growth will take place within the next two years with the stock beginning to stabilize in the third and fourth year. This is, however, subject to changes considering that over the last 12 months no major developments have taken center stage, which still remains a contingent item. I would advise investors to buy the stock on a long-term basis to hold it for at least a year before thinking about cashing in on it. Nevertheless, it is still a good stock for speculators due to recent turbulence in dividends.

About the author:

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Rating: 3.4/5 (12 votes)

Comments

tonysf
Tonysf - 2 years ago
I wouldn't call NLY a competitor of CIM. They are managed by the same people Annaly Capital and the portfolio are positioned very differnetly. NLY have all govt back securities and it is higly leveraged.

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