Fear of Rising Interest Rates Sends Annaly Mortgage Lower: Time to Buy

As Annaly (NLY) ($14.50) got clobbered yesterday, I did a little trade to make sure I'm buying Annaly near book value. Structured as a REIT and passing through 90% of earning for shareholders, Annaly Mortgage is a great way to earn dividends/mortgage interest.

Perhaps it was a delayed reaction to rising rates and this story about lower rates being good for Annaly that panicked some holders yesterday. I checked my portfolio and noticed NLY down big and trading at $14.15. By the time I checked the news and the leveraged mortgage REIT's financials, I realized that there was nothing specifically wrong, hit the button and paid $14.30. Not liking to pay a lot over the tangible book value of $11.78, I decided to sell some Jan 2009 15 strike calls at $1.30 to lower my cost to $12.00. So am I giving away upside? Perhaps, but I already own Annaly and I want to try to own it near-ish book value. And I do think Annaly is a mortgage REIT with a mark-to-market portfolio that is worth paying over book value. I like Mike Farrell and the open way he runs this mortgage fund disguised as a REIT.

Because the dividends from a mortgage REIT do not qualify for lower taxes, the place to own this high dividend fund (5% yield this year look for 9-10% next year) is in one's IRA. I have it in my IRA, but today's trade was for my taxable account.

Disclosures and confessions: I bought NLY previously, and I bought again yesterday at an average price of $14.30, and sold Jan 2009 15 strike calls at $1.30.

I do not have a mortgage. Once you have about a year's worth of living expenses saved up over savings for a rainy day, pay down your mortgage with half your excess cash and give yourself some financial flexibility if you are lucky enough to have the extra funds.

NLY 1-yr chart

Comments

[j'adoube:]

". . . Hit the button and paid $14.30. Not liking to pay a lot over the tangible book value of $11.78, I decided to sell some Jan 2009 15 strike calls at $1.30 to lower my cost to $12.00."

$14.30 - $1.30 = $13.00, not $12.00

I'm a little concerned about a "former Wall Street trader" who has trouble with basic subtraction.

2007 Jun 07 01:17 PM