10/24 Close: $2.65/share
The name might be a tad misleading, as Chimera Investment (NYSE:CIM) actually is a mortgage REIT. That doesn’t change anything about the fact that it’s (1) priced at less than three bucks a share, and (2) is stunningly underappreciated.
Chimera primarily owns residential mortgage-backed securities, meaning it buys bundles of mortgage loans made to regular people living regular lives. Yes, it was a miserable business to be in when the real estate and lending market was unraveling in 2008. CIM has performed a 180-degree turnaround in the meantime, though, allowing Chimera to cultivate what has become a fairly reliable 14% dividend yield.
Critics of mortgage REITs correctly point out that further dips in interest rates could crimp the amount of money Chimera Investment Corporation can generate for shareholders. But how much more could interest rates fall? Short-term rates are as close to zero as they can be without actually being zero, so there’s not a lot of downside. Conversely, if interest rates rise — and they eventually will — Chimera’s margins actually will widen.