Here's Why Dividend Cuts Are a Risk for Mortgage REITs
The past two years have been downright awful for mortgage real estate investment trusts (REITs). First, the COVID-19 pandemic caused the mortgage-backed securities market to freeze, triggering a wave of margin calls. The margin calls caused every mortgage REIT to sell parts of its portfolio at fire-sale prices to raise capital. Every mortgage REIT either cut or suspended its dividend. Finally, the interest rate hikes and potential sale of the Fed's mortgage-backed securities portfolio has caused mortgages to underperform Treasuries. What does this mean for the mortgage REIT sector going forward?
Chimera (NYSE: CIM) recently cut its quarterly dividend from $0.33 to $0.23 per share. Chimera owns a portfolio of government guaranteed and non-guaranteed mortgage-backed securities and whole loans. It buys portfolios of loans (largely seasoned reperforming loans) and business purpose loans. It then issues securities against them.
The volatility of the interest rate market has been difficult for everyone, especially those that hold loans that are not guaranteed by the government. The liquidity in this market comes and goes, and we have seen mortgage bankers fold due to exposure to these loans. That said, even with the dividend decrease, Chimera still yields close to 15%.
Source Fool.com
