9.5% Dividend Yield Looks Great Until You Keep Reading From Cherry Hill Mortgage

We will be looking at one of Cherry Hill Mortgage Investment Corporation’s (CHMI) preferred shares: CHMI-A (CHMI.PR.A). At a quick glance, CHMI-A may look attractive because of the dividend yield. Shares currently have a stripped yield around 9.45%.

That looks like a lot of income.

There’s just one tiny problem. We think investors should be looking for substantially more yield for taking on a significant amount of risk. CHMI-A carries our highest risk rating of 5 (very rarely we may use a 5.5 or 6.0, but those are pretty extreme cases). Out of all the preferred shares and baby bonds we cover, very few hold a risk rating of 5. But for some reason investors are buying CHMI-A today for a yield just under 9.5%.

High risk without enough yield is not an attractive combination.

High Yield Doesn’t Mean Good Yield

A 9.45% yield sounds great in isolation. However, investors shouldn’t evaluate preferred shares in isolation.

We cover 64 preferred shares and baby bonds across the mortgage REIT sector. One of the biggest strategic advantages we have when investing in preferred shares is the number of preferred shares and baby bonds we cover. We believe it’s very important to look at relative valuations and make a decision based on dozens of preferred shares. If you’re only ever watching one share, you will miss out on great deals.

We’ve recently covered preferred shares from:

Those comparisons matter because investors should ask whether the yield is high enough to justify the risk when looking at CHMI-A.

Our answer is no. Not even close.

In the first chart we posted, you can see CHMI-A recently traded around $21.97. Even though shares are trading well below their $25.00 call value, we have them at 117.5% of our buy target. Shares would have to drop all the way to $18.69 for us to view them as a buy. Prices would have to be $20.43 or higher for us to consider them overpriced. CHMI-A decided to fly straight through that threshold.

If we haven’t pointed it out enough yet, CHMI-A is grossly overpriced.

Why Risk Rating Matters

We cover 18 mortgage REITs.

CHMI is the second-smallest mortgage REIT we cover. The only smaller mortgage REIT in our coverage is Granite Point Mortgage Trust (GPMT), and that’s in the commercial mortgage REIT sector.

Among the agency and hybrid mortgage REITs we cover, CHMI is the smallest. Being small doesn’t automatically make a mortgage REIT (or their preferred shares) a bad investment. However, it is one factor to consider when evaluating the company and their preferred shares. Out of all the agency mortgage REITs we cover, CHMI carries the highest risk rating of 4.5. More importantly, in case you forgot, CHMI-A carries a risk rating of 5. On August 9, 2026, CHMI and TPG Mortgage Investment Trust (MITT) signed a definitive merger agreement, announced August 10. If the merger closes, each share of CHMI-A will be automatically converted into one newly issued share of MITT’s Series D preferred stock with the same rights and preferences. We cover MITT preferred shares, and they are also significantly overpriced in our view and carry a risk rating of 5.

How can the preferred share have a higher risk rating than the common share? We use different scales for each kind of share. Preferred shares are generally far less volatile than common shares, so we judge them on a stricter scale. So even though CHMI-A is generally less risky than CHMI common shares, it is substantially more risky than most of the preferred shares we cover.

We don’t hand those out to just any share. Among the preferred shares we cover, the only others with a risk rating of 5 come from GPMT and TPG Mortgage Investment Trust. If an investor wants a preferred share from one of these companies, they should demand materially more yield.

Cushions Are Supposed to Be Soft

One of the major factors we consider when evaluating preferred share risk is the amount of common equity relative to preferred shares. Preferred shareholders are ahead of common shareholders in the capital structure. Consequently, common equity provides a cushion that can help preferred shareholders get paid in a worst-case scenario.

We like big cushions. CHMI-A doesn’t have one.

CHMI’s common equity relative to preferred liquidation is only about 0.92x. This isn’t golf. That’s an awful number. This doesn’t mean CHMI-A is about to suspend its dividend. That’s not our argument. It means the preferred shares have substantially less protection than we would generally like to see. For instance, NLY preferred shares, which we wrote on recently, have that ratio at 7.02x. That’s one of the major reasons CHMI-A carries our highest risk rating and Annaly Capital preferred shares carry our lowest.

If we’re going to accept the additional risk, we want to be compensated for it.

A 9.45% stripped yield isn’t enough. Not even close.

How We Invest in Preferred Shares

When investing in preferred shares, we don’t view them as investments that must be held forever.

• Prices change.

• Relative valuations change.

• Sometimes, two preferred shares issued by the same company become mispriced when comparing them to each other.

When that inevitably happens, we take the opportunity to swap between preferred shares and baby bonds. That’s one reason we regularly write about preferred shares and baby bonds for members of The REIT Forum.

Investors who want to see how that strategy has worked in practice can also see our actual trading history in a recent blog we wrote.

We think transparency is very important. It’s easy to say an investment was attractive after the price went up. We’d rather show investors what we actually own and when we bought/sold it. We also attempt to foreshadow those trades when we can to make it easier for investors to see our thought process going in and evaluate if they may want to make a similar trade.

Final Thoughts

CHMI-A could become attractive. It just needs to be cheaper. Further, this share isn’t for conservative investors. We view the preferred share as only being for investors with a very high-risk tolerance. Even if the shares were to drop into our buy range, the risk profile still may be a poor fit for many investors.

There are simply too many other preferred shares and baby bonds available.