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Summary

  • This further supports my thesis about NLY.
  • The CEO makes lots of money, but regardless, that is a large insider buy.
  • There are many reasons for an insider to sell shares, but only one reason to buy.

My ongoing coverage of Annaly Capital (NYSE:NLY) now includes even more ammunition to support my thesis that NLY is undervalued, and the future, both for dividends and capital appreciation, is bright.

It is often said by market pundits that when an insider sells shares of company stock there could be many reasons, but when an insider buys, there is only one reason. Who else would know more about the company and where it is going than the CEO?

The CEO Plunks Down $1 Million To Buy Shares Of NLY

Wellington Denahan purchased more than 86,000 shares of NLY yesterday. It was an open market purchase at $11.52/share and brings the total shares directly owned by her to 1,374,918.

There are those who would say that her greater than $30 million compensation means that $1 million is a drip in the bucket. That may be so, however this purchase alone sends a clear signal to me, as to where the company is headed.

If you recall, I called a bottom before anyone else writing about NLY and the reason was because of the stable interest rate environment, the zero interest policy by the Fed, and the fact that longer term rates had not shot up as everyone had feared.

I purchased shares at $9.77 back on December 31st, 2013, and wrote why I felt strongly about my decision.

To me there appears to be support at the lower prices and resistance at the higher levels. That being said, since the company has already announced a 15% dividend cut for next quarter, I can live with a dividend opportunity stock being in a "trading range" between $9.70-$10.20 per share.

With a current yield of 12%, and I believe no further dividend cuts, a basically flat-lined share price is fine for me. Ironically, I can NOW see the discount book working in shareholders favor to move the stock to higher lows, and somewhat higher highs. That is NOT to say the share price will see $17.00 anytime soon, but in this case, price stability is a huge step in the right direction.

Since that time there has been a clear shift of business strategy within NLY that has led me to believe that even at current share price levels, the stock could still be purchased right now.

The fact that the earnings came in with a surprise to the upside, and book value vaulted up several notches, are crystallized by the earnings key takeaways:

  • Core earnings of $300.4 million, $0.30 earnings per common share.
  • Strong capital position with capital ratio of 15.4% and leverage of 5.3:1.
  • Book value of $13.23, up from $12.30 as of prior quarter
  • Net interest rate spread of 1.26%, up from 0.90% in prior quarter.

Now, add to that CEO Wellington Denahan had to say prior to the company conference call:

We welcome the continued reduction of monetary policy influences on the markets and all the opportunities it brings. We continue to feel comfortable in our ability to sustain attractive risk-adjusted returns in the quarters ahead.

Now we have Denahan putting her money where her mouth is.

I reiterate my position that Annaly Capital is a buy and could potentially increase dividends before this year is over.

The Bottom Line

Since late last year, NLY has set its course to become a hybrid of sorts with the purchase of CreXus, the business association with Inland Real Estate Group (which puts NLY in the triple net leasing business) as well as maintaining its conservative approach to the mortgage backed securities market.

While there will always be inherent risks associated with an interest rate sensitive security, I believe a risk allocation of NLY could pay off handsomely, in the near term as well as the long term.

Disclaimer: The opinions of the author are not recommendations to either buy or sell any security. Please remember to do our own research prior to making any investment decision.

Source: Annaly Capital: When The CEO Buys $1 Millon In Shares, I Listen