The Allure of High-Yield Preferred Shares: A Deep Dive into Chimera Investment's CIM-C
In the world of investing, the allure of high-yield preferred shares is undeniable. These securities offer a unique blend of income and stability, making them an attractive option for investors seeking both regular dividends and the potential for capital appreciation. One such opportunity that has caught my eye is Chimera Investment's CIM-C preferred shares. With a stripped yield of 11.05%, CIM-C is currently trading at $20.15, presenting a compelling case for investors.
What makes this particularly fascinating is the contrast between CIM-C's high yield and its recent volatility. While the preferred share prices have been more volatile over the last few days, this is not typical. In a normal environment, we would expect the preferred share prices to fluctuate by less than 0.5% on an average day. However, the recent volatility is beyond the normal range, which raises questions about the underlying factors driving these price movements.
One thing that immediately stands out is the disparity in relative valuations between CIM-C and other preferred shares from the same REIT. CIM-C has underperformed its peers, CIM-B, CIM-D, and CIM-A, which is unusual given that CIM-C has a higher yield and a lower price. This discrepancy suggests that there may be underlying factors at play that are affecting the performance of CIM-C.
From my perspective, the case for CIM-C is compelling. Its high yield and lower price make it an attractive option for investors seeking both income and upside potential. However, it is essential to consider the underlying company, Chimera Investment Corporation (CIM), and its risk profile. As a mortgage REIT, CIM operates using significant leverage, which exposes it to credit risk and interest rate risk.
One thing that many people don't realize is that mortgage REITs can either focus on using credit risk or interest rate risk to generate net interest income. In general, I lean towards preferred shares from mortgage REITs that take interest rate risk rather than credit risk. However, in this case, I find the valuation for CIM-C compelling enough that I decided to build a significant position (5,962 shares).
I don't intend to hold these shares forever. Instead, I expect to close the position when valuations normalize. Meanwhile, I'll be looking at an attractive yield. This combination of significant income and reasonable upside potential is what makes high-yield preferred shares so appealing. In my opinion, CIM-C is a prime example of why investors should consider adding high-yield preferred shares to their portfolios.
In conclusion, the allure of high-yield preferred shares is undeniable, and CIM-C is a prime example of why. With a stripped yield of 11.05% and a lower price, CIM-C offers a compelling case for investors seeking both income and upside potential. However, it is essential to consider the underlying company and its risk profile before making any investment decisions. Personally, I think that CIM-C is a great opportunity for investors looking for a high-yield preferred share with upside potential.
