Annaly Capital Management, Inc. (NLY) shares have been acting strong even on days when the market is seeing sharp declines. This stability and the high-dividend is likely to keep investor demand for Annaly shares high as 2012 continues. Annaly is set up as a mortgage real estate investment trust (mREIT), and it invests in residential mortgage securities. By using leverage, this company is able to provide exceptionally strong returns.
Of course, leverage adds some risk, but since it is being used to buy stable mortgage securities, the relative risk is lower than many other investments. Some investors have been concerned that Annaly would be impacted negatively if a mass refinancing program was initiated by the Obama administration.
Investors also were concerned several months ago when the SEC decided to review the amount of leverage used by mortgage REIT companies. But the worst-case scenarios just have not come to pass, and they probably won't. Here are 4 positive reasons why investors should consider putting some shares of Annaly in their portfolio:
- The stock is trading below book value of $16.06 per share. With most stocks in the market trading well-above book value, Annaly shares look undervalued as investors can buy for less right now.
- Jim Cramer of CNBC's Mad Money show has given Annaly shares a buy rating and he even reiterated his bullishness on this stock just days ago. Stocks like Annaly that received consistent mention and bullish comments from Jim Cramer are likely to remain strong and maybe even move higher thanks to exposure from his show.
- This stock has been showing strength recently and it remains right between key support levels of the 50-day moving average which is $15.89 and the 200-day moving day average, which is at $15.71. With the markets acting volatile, it is important to be invested in stocks that remain stable. When investors are hitting the panic sell button, they will almost always pick a stock that pays little or no dividend over one that pays a high-yield and that is one reason why this stock offers stability when the markets fluctuate sharply.
- It's the Dividend! The Federal Reserve has a zero interest rate policy and it promises to keep rates low for the foreseeable future. Of course, there is some risk with owning Annaly shares, but I believe the risk to reward ratio is very favorable. When you consider that a money market account or a certificate of deposit can pay less than half of a percent, the reality is you are guaranteed to be losing out over the long run as taxes and inflation eat away at your capital while you get paid almost nothing. Annaly shares now pay about 14%, and an investor who holds for the next 3 years could earn close to 45% in returns from the dividend alone. An investor in a money market account which also has certain risks, will be lucky to have made 2% in the same time that Annaly delivered a potential 45% return.
With all the positives here, there is good reason to consider buying Annaly shares, especially on dips.
Key Data Points From Yahoo Finance:
- Current Price: $15.77
- 52-Week Range: $14.05 to $18.79
- Dividend: $2.20 annually which yields 14%
- 2012 Earnings Estimate: $1.93 per share
- P/E Ratio: about 8
Data is sourced from Yahoo Finance.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in NLY over the next 72 hours.
Disclaimer: No guarantees or representations are made. Please consult a financial advisor before making investments.