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Patrick
2010 Oct 13, 2:27pm
The March 2011 $2.50 put is now asking ten cents. It doubled since you pointed out that it was too cheap!
Even so, you'd only need for the stock to get down to $2.40 before March to break even on your puts. I think there's a very good chance of that happening.
Yahoo has the debt/equity ratio for CIM at 130. 130 times equity! They're all debt. There's no there there. So I wouldn't own it, but maybe the puts are a good bet if you can really get them that cheap. Funny things happen when you try to actually place an option trade.
It's a mortgage based REIT, so the ratios are going to be pretty high. I quoted the ask vs bid price, there is a fairly large margin there, I'm not sure where it was trading at.
They have paid out the last 5 quarters at 17cents though, with only a couple of bad quarters before that. With that much debt, I figure they have 2 options. Belly up due to bad mortgages, or take off, due to consistent payments and an ability to mange that debt effectively.
Probably a pretty risky company regardless!
justme
2010 Oct 14, 1:16am
What is Mortgage REIT anyway? It sounds like a pool of mortgages that pays the incoming cash out as dividend, with some high fees siphoned off for the fund managers.
If the mortgages go bad, the stock price goes down, and so do the dividends.
Essentially what you pointed out, REITs just have to get income from Real Estate based functions, handling mortgages is one of them.
There definitely could be a huge pile of bad mortgages in there, and if so, it could easily go to 0 over night.
SFace
2010 Oct 14, 5:23am
Pkennedy, I studied CIM a little bit and decided not to buy as there are too many unknowns to determine whether the dividends can be sustained at that level. They raised a lot of money recently and their dividends exceed that operation cash flow consistently. Also, stocks are prettty high right now and we are at top level resistance. Caution.
However, a collegue point me to DHIL. In a nutshell this is a investment service company that paid divididends of $10 in 2008, $10 in 2009 and $13 for shareholder on record on December 1st, 2010. I haven't looked into it yet, it is a not a REIT, so if you're like me who is sitting on tons of capital gain, realized and unrealized, it would be great to shift some of the gains into qualified dividends.
For example, let's say it is 1,000 shares at $80 pre dividend.
Post dividends, it is $67 dollar share but $13 dollar dividend. I hold it for 60 days and it becomes qualified. I lose 13 share capital gain which is at the full 33% federal (13*1000*.33 = $4,290) and pay tax on qualified dividends (13,000 *15% = $1,950)
So the string of transaction would save me $2,340 in federal income tax on 1,000 shares. which is a $2.34 per share cushion.
Vicente
2010 Oct 14, 6:35am
Is this an official Stock-Pumping Thread(tm)?
Not until we have commentary from my pal....
Educational none the less.
I haven't really dug into CIM, and I'm not confident on my abilities to pull out deciding factors. I'm more curious if a hedging play would work here? Since the market it is at a high right now, it seems that the puts would be pretty cheap right now. Buy the puts now, wait for the stock to drop to 4ish, and hold it until the dividend.
I'm guessing it would be slightly speculative or perhaps only creating a risk without reward scenario, but if the dividends don't come out, people are going to jump ship pushing the stock down drastically. If they don't put out dividends it might be due to something blowing up on their side. Again stock plummets. You lose the 15cent hedge bet.
The dividend seems to cover the hedge placement, while the stock is so far undervalued that if it does pay out this next dividend (perhaps the next one as well) that it's value should be pushed up by investors, at which point you could lock in profits, or place another hedge on the next dividend, with hopefully the stock well above $4 by that time.
I've been looking at REIT's lately. I'm not sure if this company CIM will be around in a year, but they are paying out their dividends currently. Roughly 19% depending on when you pick up the stock.
They're priced at about $4.00 right now. I suspect they will either fold, or not. There probably won't be much in between. My main worry with them is they explode and go bankrupt.
I was thinking of buying CIM + options at $2.50 or perhaps even $4.00. This will prevent me from making money over the course of the next 6 months but should allow me to hold the stock long enough to see if they're going to see any kind of recovery. The dividend will cover the costs associated with the options, make it free to hold. If the stock goes belly up in the next 6 months, my call options exercise, if it pays the dividend, I lose the options but get the dividend and likely another 2 quarters of dividend payments will help solidify that the stock and force the price skywards.
I'm just wondering what others think of idea? It's not fool proof and I could easily encounter issues where I lose out.
Currently March 2011 $2.50 puts are asking $.05 and the $4.00 are asking $.30. Past dividends show about a 17 cent per quarter payout.