What You Need to Know About Chimera

Mortgage REITs issue shares to investors to raise capital, which they use to buy mortgage-backed securities. They also use short-term financing to boost their returns. They repay lenders out of the mortgage payments they collect, and most of the rest is returned to shareholders in dividends.
Let's take a quick look at four things investors in Chimera need to know. After that, we'll see how Chimera stacks up next to its competitors.

1. Interest rate spread
A REIT's interest rate spread is the difference between a REIT's financing costs and its interest income. It's a decent measure of investing profitability -- and portfolio risk.

2. Debt-to-equity ratio
Since interest rate spreads tend to be pretty narrow, REITs like to leverage those returns to generate bigger returns. Companies with safer portfolios can afford to take on more leverage risk than those with riskier investments.

3. Share growth
Since REITs have to pay out the vast majority of their earnings in dividends, the only way to grow their business is to take on more leverage or issue new shares. If a company issues a lot of shares, we want to make sure it does so at attractive prices so investors aren't diluted.

4. Dividend yield
The main reason to buy mortgage REITs is for their dividend. The forward yield tells us what dividends we'll get paid over the next year if earnings hold constant.

Let's see how Chimera stacks up next to its peers in these four crucial areas:... Read more