Chimera Investment Corporation (NYSE:CIM)’s dividend is a chimera for investors
Chimera Investment Corporation (NYSE:CIM) will commence trading ex-dividend on 27 June 2013. A cash dividend payment of $0.09/share is to be paid on 31 July 2013. Shareholders who have purchased the company stock before the ex-dividend date will be eligible for this dividend payment which marks the 5th quarter that the company has paid this same dividend. At the present stock price of $2.95, the dividend yield is 12.2 percent.
What are dividends?
Dividends are essentially corporate earnings that many companies pass on to their stakeholders. There are numerous reasons why a company will decide to pass on a portion of its earnings as dividends. There are also several reasons why it may choose reinvest all its earnings right back to the company. Generally, any company that is still in its primary growth stages will not pay dividends. This is because it will want to invest as much as it can into further growth. Even mature companies believe that they will be able to do a better job of value addition and share price addition by re-investing a part of their earnings and may decide against paying out dividends.
The tax factor
From a tax perspective, investors may benefit investors. Dividends are considered to be ordinary income and thus, are taxable. What this means is that the tax rate that an investor has to pay on dividends is the same as the marginal tax rate which can be as high as 35 percent.
Companies that opt not to pay any dividends may end up using the money to acquire new assets, launch a new project, repurchase their own shares or even acquire a new company. On the other hand, a mature company that has stable earnings and does not need to reinvest too much in itself might find issuing dividends a good idea. Many investors are attracted to the steady income that is associated with dividends and will be more likely to buy shares of that company. Dividends are also looked upon as a sign of a company’s muscle and that the management is positive about future earnings. However, for a company like Chimera Investment Corporation (NYSE:CIM), which has been steady with issuing dividends, it is a sure-shot sign of strength and stability.