Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Cherry Hill Mortgage Investment Corporation (NYSE:CHMI) has returned to shareholders over the past 4 years, an average dividend yield of 11.00% annually. Should it have a place in your portfolio? Let’s take a look at Cherry Hill Mortgage Investment in more detail. View our latest analysis for Cherry Hill Mortgage Investment
How I analyze a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- Is it the top 25% annual dividend yield payer?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has dividend per share risen in the past couple of years?
- Can it afford to pay the current rate of dividends from its earnings?
- Will the company be able to keep paying dividend based on the future earnings growth?
How well does Cherry Hill Mortgage Investment fit our criteria?The company currently pays out 49.27% of its earnings as a dividend, according to its trailing twelve-month data, which is rather low compared to other REITs. Generally, REITs are expected to pay out the majority of its earnings to provide a regular income stream for their investors. In the near future, analysts are predicting a higher payout ratio of 93.33%, leading to a dividend yield of around 11.06%. However, EPS is forecasted to fall to $2 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income. This also brings about uncertainty around the sustainability of the payout ratio. If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Unfortunately, it is really too early to view Cherry Hill Mortgage Investment as a dividend investment. It has only been consistently paying dividends for 4 years, however, standard practice for reliable payers is to look for a 10-year minimum track record. Compared to its peers, Cherry Hill Mortgage Investment has a yield of 10.99%, which is high for Mortgage REITs stocks.
If Cherry Hill Mortgage Investment is in your portfolio for cash-generating reasons, there may be better alternatives out there. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. Below, I’ve compiled three key aspects you should further research:
- Future Outlook: What are well-informed industry analysts predicting for CHMI’s future growth? Take a look at our free research report of analyst consensus for CHMI’s outlook.
- Valuation: What is CHMI worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether CHMI is currently mispriced by the market.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.