Wow, there has been loads of commotion on the mREIT front, and plenty of issues that have made even the most staunch investor in this section squeamish to say the least.
I am going to ATTEMPT to make a compelling argument as to why I feel that Annaly Capital Management, Inc. (NLY) is a very strong buy, right now, yep... NOW.
As usual I will keep my article brief, to the point, and direct, so that everyone can see where I am coming from, and be able to make a decision using my suggestions, opinions, and research combined with YOUR own research, due dilligence, and appetite for this type of investment.
Why NLY now?
BEST OF BREED
Since 1996 NLY has had the right recipe for success in the mREIT business. As many others have floundered, NLY has flourished. It is NOT an easy industry to navigate, especially through difficult times, yet no other mREIT comes to mind that has done a better job than NLY. Take a quick look at their vitals.
I will just name a few fundamentals here, such as 2010 net income of $1.2b in 2010, with a rebound from $346m in 2008, but a drop from 2009 $1.9b, which can be accounted for from most of the re-fi's and foreclosures ... which the majority has already happened. see it here.
Net income applicable to common shares of a positive $116m for the qtr ending June 2011, from a NEGATIVE $18m quarter ending September 2010. Some bounces in between for the same reasons I mentioned above. See it here.
Finally, net tangible assets of $9.8b in 2010, vs $9.5b in 2009, vs $7.1b in 2008 ... which is explained because as the mortgages are "paid off" (or re-fi's) NLY gets the cash, and their book value increases -- not a terrible trade off! See it here.
This is the BIGGIE, gang, 14.4% as of today (2.40/share annual). Even at 10%, where will you get that kind of yield from any solid blue chipper you can find?
Yes, the dividend was cut from .65/share to .60/share this last qtr due to the lower income ( re-fi's and foreclosures, folks, not a broken business model) and all mREITS have IRS guidelines as to the % (90%) of its income that MUST be returned to shareholders.
The dividends HAVE fluctuated over the years but you would be WAY ahead if you'd bought the shares in 1997!
Management has not changed since its inception, and Mike Farrell is widely acclaimed to be the best in the business (even managing the back side for Chimera (CIM)). For quite some time this CEO seems to have had the Midas touch, and it will continue in my opinion. What will stop him?
PRICE PER SHARE TRACK RECORD
In an extremely volatile real estate market, NLY has had the discipline to grow, expand, and prosper since it went public back in 1997 -- with some fluctuations, the price per share has gone from approximately 9.00/share, to 17.00/share as of today October 28th, 2011. View this chart:
Yahoo Finance chart
The share price remember is also reflective of all the dividends it has given back to the shareholders since NLY's inception; you might even own the shares you bought for FREE at this point! (it can still be done folks).
OK, now this is what the negative nabobs point to:
1) Operation Twist
Well that announcement has gone over like a lead balloon and has had virtually NO impact on the yield curve, and its future impact will be minimal at best (perhaps 10 to 15 basis points on the 10 year Treasury)
2) The Yield Curve Will Flatten
OK, it has a tad, but not to where the entire industry will go POOF, and remember, the fed has already shown its hand by announcing to keep the short term rates at virtually ZERO....and NLY makes its money using the spread between the short term rates and the longer ones....and all they need to do is tweak it a bit from time to time to keep the profits flowing!
3) The New "National" Re-Finance Effort by Our President
Remember HAMP, HARP, MHAP? A total of about 850k mortgages were "aided" -- during the TOP of the crisis! Even if that is duplicated (which I do not think it will be anyway) the impact will be minute compared to the amount of money that NLY can make regardless.
4) The SEC "Question"
Yes, the SEC is asking for for comments regarding the tax status of all REITS. It has the potential to change the business model to the point where many will exit the business. However, take a look at when the SEC opened its question period: right when Twist was being floated, as well as the National Re-Fi noise. Coincidence? In my opinion it was politically motivated, will go absolutely nowhere, and is nothing but a huge red herring.
NLY is a winner. I own it, I add more when the price drops, I have the dividends reinvested, and I see nothing but blue skies ahead for the foreseeable future given the opinions that I have presented for your consideration. It is a BUY from THIS corner in the world!