Calling the Brexit vote, “a good shake of the macro snow globe,” Nomura analyst Brock Vandervliet said
Wednesday he is more convinced than ever of his Buy rating on mortgage real estate investment trust Chimera Investment (CIM). He met with management this week and writes:
We came away with increased conviction in this stock and our Buy rating. Particularly given the post-Brexit interest rate environment, the stock should be in the front rank of financial services sector investments. CIM is exceptionally well-positioned, owning a portfolio of highly interest rate insensitive seasoned sub-prime MBS and subordinate tranches along with a growing GNMA project finance loan portfolio.
Chimera’s stock was up more than 1% Thursday to $15.60 just before noon. Vandervliet has a $17 price target. The stock is already up 17% year-to-date, including the hefty 12% dividend yield.
Vandervliet believes that dividend is “more than sustainable,” unlike many mortgage REITs. He writes:
The $0.48/quarter dividend appears to be increasingly conservative. However, CIM pre-announces its next year’s quarterly payouts at the end of each year. Therefore we don’t expect any immediate change. This dynamic though of a flat to higher dividend will likely be increasingly in contrast to what is likely to be a grind lower in earnings and dividends at some mortgage REITs given the continued flattening yield curve and grind lower in absolute yields.