Annaly: Buy This High-Yielder After The Next Capital Raise

| About: Annaly Capital (NLY)

The Federal Reserve just released forecasts which confirm beliefs that interest rates will stay very low for the foreseeable future. A Wall Street Journal article sums up the interest rate environment going forward:

Projections released by the Fed found seven officials expecting the first rate hike to come in 2014, a modest increase from the January projection, which was supported by five officials. The projections also show nine of the 17 members of the monetary policy-setting Federal Open Market Committee now see interest rates at 1% or less at the end of 2014. Previously, nine members saw rates at 0.75% or less for the same time period.

This is almost a guarantee that rates will remain low. Investors who stay in money market funds, or savings accounts will continue to earn close to nothing for the next couple of years. This is why it makes sense to consider alternative investments with high yields. One investment that fits this bill is Annaly Capital Management, Inc. (NYSE:NLY). This company is a leading mortgage real estate investment trust (mREIT). It uses leverage to invest in residential mortgage securities, and that allows it to generate exceptionally strong returns for shareholders. Annaly is considered to be one of the best-managed mREIT stocks and even Jim Cramer is bullish.

Like with any investment, there are risks involved, but with a yield of about 14%, it makes sense to consider putting some shares of this high-yielder in a portfolio, especially in tax-deferred accounts. The next question becomes when would be the best time to buy into Annaly. Long-time shareholders know that Annaly has a history of secondary offerings. These offerings often occur when the stock is trading close to or above book value, (as it is now) and when the company sees an opportunity to deploy additional capital. When the offerings are announced, the stock usually drops by a few percentage points which offers investors a chance to buy in at a better price. In 2011, the company announced three secondary offerings:

1) On January 4, 2011, Annaly offered 75 million shares, at $17.20 each.

2) On February 15, 2011, Annaly offered 75 million shares, at $17.30 each.

3) On July 11, 2011 the company offered 120 million shares, at $17.70 each.

With Annaly having made three secondary offerings just last year, there is a good chance another offering could be made in 2012. The stock has been rising lately, and that could be making another secondary offering more likely. Buying on dips makes sense, especially if an offering is announced. That would likely provide investors with a better entry point, and for some investors, that might be worth the wait.

Key Data Points For Annaly From Yahoo Finance:
Current Price: $16.27
52-Week Range: $14.05 to $18.79
Dividend: $2.20 annually which yields 13.6%
2012 Earnings Estimate: $1.93 per share
P/E Ratio: about 8 times earnings

Chimera Investment Corporation (NYSE:CIM) is another mREIT stock to consider on pullbacks. Chimera is externally managed by Fixed Income Discount Advisory Company, which is a wholly-owned subsidiary of Annaly Capital Management, Inc.

Key Data Points For Chimera From Yahoo Finance:
Current Price: $2.88
52-Week Range: $2.38 to $14.07
Dividend: 44 cents annually which yields 15.5%
2012 Earnings Estimate: 44 cents per share
P/E Ratio: about 7 times earnings

Data is sourced from Yahoo Finance. No guarantees or representations are made. Please consult a financial advisor before making investments.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.