I'm going to raise a point in this article that few of my colleagues are talking about. Before I delve into this important issue, I want to say that I know what most of you are going through. You have not been shy about sharing your trades, your thoughts, your fears. Some have even detailed their losses, and I have done my best to allay some of these fears. I have also offered trading strategies to recoup some of the losses. Still many of you ask, with all of the volatility, all of the fear you are experiencing, is it worth sticking with Annaly Capital Management (NLY)? Clearly, one of the most painful sectors to have been holding stocks over the last few quarters has been the Mortgage Real Estate Investment Trusts (mREITs). There are several reasons for the sell-off, some warranted, others overblown. For reasons why the stocks have sold off and what I think they future holds in store for the sector in the short, medium and long-term, please feel free to look over my numerous articles on the sector. In this article I really want to talk to those who have bought recently, within the last 18 months. You are the folks that have been hammered. I still maintain that those who have bought should consider taking advantage of lower prices to lower their cost average, while collecting the dividends going forward. However, in light of the dividend cuts, many question if it is really is worth it. I'll be honest, the sector has not been for the weak stomached investors with all of the anxiety of capital losses and dividend cuts. But I maintain that although the cycle of these stocks fluctuates with interest rate movements, as do their dividends and share prices, timing buys and pyramiding down to lower cost base whilst harnessing the power of the dividend can deliver ultimate returns. It simply requires patience, strong will and trust in the management.
In this article I want to raise two issues. First, I want share with you how those who have held this stock long-term have fared through thick and thin since the turn of the century. Secondly, I want to raise an issue few are talking about: the insider buying in the stock that has occurred during the quarter.
At Look At Historical Dividends Since The Turn Of The Century
NLY has been paying a strong dividend since the late 1990's. For those of you who have recently bought, take a look at the historical dividends since the turn of the century (table 1). A 14 year history should be a sufficient gauge to judge management. While anything can happen, years is long enough for a lot of different interest rate scenarios and economic patterns to be baked in. This is why I often encourage those holding these stocks to simply calm down and not panic in the short-run. Just monitor the situation and understand that we are in a changing interest rate environment over the last 6 months.
Table 1. Annaly Capital's Dividend History Since The Start Of The 21st Century
Dividend Paid Date
Dividend Amount ($)
Total Paid ($)
*Note Dividend Not Yet Paid
As table 1 clearly shows, NLY has had an amazing history of dividends. The dividend at $0.35 is obviously at the lowest it has been since January 2008 when the dividend was $0.34, and is now is at the same amount it was at for the first dividend of the 21st century. Ok, so what if someone got in at the highest possible price during December 2000? Well the high in December 1999 was $8.83. Let's assume they purchased shares once, not adding to declines or reinvesting any dividends. Thus, as of the current price of $11.63, this person would be up $2.80 or 32%. That is pretty good, though over a 14 year period, it's a little light. However the dividends paid (not counting the $0.35 to be paid in October) total $25.11. Assuming again they only bought shares once in December of 1999 and didn't reinvest the dividends, the investment is now up a total of 316%. That's more like it. A tripling of one's money is a successful investment. In fact, since July of 2004, every single dividend paid has been 'free money,' a term meaning it just adds to gains. The investor can't lose, even if shares went to zero. If and when the shares rebound from their current $11.63 price, even more gains can be had if this investor chose to sell. So for those who just got in, yes, the short-term pain is real. The disappointment of a lower share price from where you may have bought and being paid less to wait for a rebound is not easy to stomach. But, look at it objectively. You could dump now, on the cusp of a potential breather for this sector, and an improving climate. Or, you could hold tight, and trust in management to weather the storm while you collect the dividends.
Why isn't anyone talking about the insider buying in NLY. You know, in the last 5 years, there hasn't been all that many insider buys. In fact, there have been 13 buys in the last 5 years. What is interesting to note, is that management has faith in the stock. There have been 5 buys this year (table 2). That represents 38% of the insider buys in the last five years. What is even more compelling is that of these 5 buys this year, 80% have been here in the third quarter, where NLY has been under extreme pressure. This is a huge vote of confidence. It may be an old saying, but it is true. People sell stock for all sorts of reasons, but buy for only one; to make money. These buys are reassuring. While management is well compensated, I highly doubt they would simply throw their money away into shares if they thought the stock was going to further plummet. CEO Wellington Denahan's purchase of 181,818 shares for two million dollars is most striking. She picked up shares for $10.96. What a bargain. I think this buying activity deserves to be discussed more among my readers, as it has fallen by the wayside while folks focus solely on the dividend cuts and declining share prices.
Table 2. Annaly Capital's Insider Buys in 2013.
Share Price ($)
For those who recently got into NLY in the last 18 months, you are no doubt hurting. I think if you have the stomach to hold long-term, you will do well. One could even purchase shares on dips to lower their cost average. Collecting the income and/or reinvesting the dividends over the long-term will likely deliver great returns. Those who have been calling NLY dead money should look to the insider buys. Look at the activity in table 2. That is striking. Over 240,000 shares purchased in 2013, and nobody has sold. Stay the course.