Cherry Hill Mortgage's CHMIPA: A Steady 9.38% Dividend in a Volatile Market

The real estate sector has long been a haven for income-seeking investors, and within this space, preferred stocks often stand out for their predictable dividends. Cherry Hill Mortgage Investment Corporation's 8.20% Cumulative Preferred Stock Series A (CHMIPA) offers a compelling example of this dynamic, currently yielding an attractive 9.38% forward dividend. This security has emerged as a reliable income generator, particularly in an environment where interest rates are on the rise and market volatility persists.

The Case for CHMIPA: High Yield with Structural Stability

CHMIPA's appeal lies in its combination of a robust dividend yield and the structural features of preferred stock. Unlike common stock, preferred shares typically offer fixed dividends, which are prioritized over common dividends in the event of a payout. This “cumulative” designation means that if Cherry Hill were to ever suspend dividends, any missed payments would accumulate and must be paid out before common shareholders receive anything.

The 9.38% forward dividend yield is derived from the annualized dividend of $0.82 per share (8.20% of the $100 par value), divided by the current stock price. As of the latest data, CHMIPA trades below par, which boosts its yield. This makes it a standout option compared to broader market benchmarks like the S&P 500 REIT Index, which yields around 4.2%.

Track Record of Consistency

Cherry Hill Mortgage has maintained a disciplined approach to dividends, even during periods of market stress. While the common stock (CHMI) has seen quarterly payouts of $0.15 per share for the past several years, the preferred stock's quarterly dividend payments (currently $0.205 per share, paid semi-annually) underscore the company's commitment to income distribution. This reliability is critical for investors seeking steady cash flow, especially in an era of economic uncertainty.

The company's focus on real estate-related investments—primarily residential mortgage-backed securities (RMBS)—provides a stable revenue stream. Despite fluctuations in the broader market, Cherry Hill's portfolio has shown resilience. For instance, in Q1 2025, the company reported a GAAP net loss due to unrealized losses on derivatives, but its Earnings Available for Distribution (EAD)—a non-GAAP metric that excludes such volatility—remained positive, supporting dividend payouts.

Rising Rate Environment: A Mixed Blessing

Preferred stocks like CHMIPA are often seen as sensitive to interest rates because their fixed dividends compete with new issues. However, Cherry Hill's real estate exposure introduces an interesting dynamic. In a rising rate environment, higher yields on mortgages can boost the company's net interest margins, potentially offsetting the pressure on preferred stock prices.

Moreover, the cumulative feature of CHMIPA adds a layer of protection. While the stock price may dip if rates climb, the dividend obligation remains intact, ensuring holders receive their full payout over time. This contrasts with common stocks, which might reduce dividends entirely during challenging periods.

Key Risks and Considerations

• Interest Rate Sensitivity: As mentioned, rising rates could compress the stock's price, though the dividend's fixed nature provides a floor.
• Leverage: Cherry Hill operates with a leverage ratio of 5.2x, which amplifies both rewards and risks. A sharp rise in interest rates could strain profitability if borrowing costs outpace income gains.
• Economic Downturn: A housing market slowdown or spike in delinquencies could impact the value of RMBS holdings.

Investment Thesis

CHMIPA is best suited for income-focused investors willing to accept moderate volatility for high yield. The 9.38% forward dividend, coupled with the cumulative feature, makes it a compelling alternative to lower-yielding bonds or dividend-paying common stocks. While not immune to macroeconomic headwinds, the security's structure and Cherry Hill's proven dividend discipline position it as a viable income generator in a low-yield world.

Final Take

For those prioritizing steady cash flow and willing to navigate interest rate risks, CHMIPA offers an intriguing opportunity. The 9.38% yield and the company's real estate focus align with the needs of retirees or income investors seeking to outpace inflation. Just remember: preferred stocks are not a “set it and forget it” investment—monitor Cherry Hill's EAD metrics and broader mortgage market conditions to ensure the dividend remains sustainable.

In a market where certainty is rare, CHMIPA provides a rare blend of yield and structural reliability. For the right investor, it's a dividend-paying gem worth considering.