On Tuesday, June 19, after the markets closed, Annaly Capital Management (NLY) reported that it will pay a Q2 2012 common stock dividend of $0.55 per share. This is in line with Annaly's dividend for the first quarter of 2012, but ten cents below its Q2 2011 dividend. The dividend is payable July 26, to shareholders of record on June 29, with an ex-dividend date of June 27.
Annaly is a mortgage REIT, or mREIT, that buys mortgages backed by federal agencies. Annaly is the largest publicly traded agency mREIT. See one year chart for NLY, below, indicating dividends paid:
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Several competing mortgage REITs had already reported their dividend for the second quarter of 2012 last week, and maintained their dividend rate from the first quarter of 2012. Last week, Annaly's largest agency mREIT peer, American Capital Agency Corp (AGNC), reported that its quarterly dividend would be maintained at $1.25. Additionally, Invesco Mortgage Capital (IVR), which also purchases non-agency RMBSs, maintained its $0.65 quarterly dividend. Similarly Two Harbors Investment (TWO) maintained its prior $0.40 quarterly dividend.
Also last week, Capstead Mortgage (CMO) reported that its quarterly dividend was reduced from $0.43 to $0.40. One difference between CMO and NLY is that NLY cut its dividend last quarter, from $0.57 to $0.55, while CMO had maintained its Q4 2011 payout into Q1 of 2012. AGNC had also reduced its dividend last quarter, cutting it to $1.25 after ten quarters of keeping it at $1.40. Annaly's dividend has been more volatile by comparison over the last few years.
Annaly is unlikely to report Q2 results until around the start of August, but the second quarter should have been generally positive for Annaly's portfolio. Annaly last reported its annualized yield on average interest-earning assets was 3.23% during Q1, while its cost of funds was 1.52%. As a result, Annaly had an average interest rate spread of 1.71%, which is the same spread it had during Q4 of 2011 and a 46 basis point decrease from the 2.17% spread it had during Q1 of 2011. Annaly also noted that at the end of Q1, its average yield on investment securities was 3.21% and the average cost of funds on borrowings was 1.51%, for a spread of 1.70%. Annaly also reported that its book value at the end of Q1 was $16.18, a twelve-cent increase from the end of 2011.
Fixed-rate securities comprised 91% of Annaly's portfolio at the end of Q1, with 8% in adjustable-rate securities and 1% in LIBOR floating-rate collateralized mortgage obligations. The company also noted that after taking into account the effect of interest rate swaps, the portfolio was comprised 51% fixed-rate assets, 41% floating-rate and 8% adjustable-rate. One concern is that some unamortized premium may be lost by the prepayment or calling of certain agency RMBSs.
According to Jeremy Diamond, Managing Director, Head of Research and Corporate Communications for Annaly, who gave a presentation last week, Annaly often must choose between selling appreciating agency paper and harvesting possible gains, or keeping that paper and potentially losing the premium if the agency calls it. In either situation, Annaly has to reinvest the cash-flow into whatever interest rate environment exists.
Annaly last reported that its leverage rate at the end of Q1 was 5.8x, a slight increase from the 5.4x leverage at the end of Q4 2011. Annaly's management became more conservative since its last secondary offering, at the start of the summer of 2011 and about one year ago. That last secondary was in advance of the debt ceiling crisis and subsequent downgrade of U.S. debt. Annaly increased its leverage in 2012 after the Federal Reserve announced its intention to extend its low late policy.
The company will also likely report book value appreciation, but that is should occur when it reports its second quarter results, in about six weeks. In the interim, most Annaly holders will likely only fear a secondary shortly after the ex-dividend date, or next Wednesday, June 27.
Disclaimer: This article is intended to be informative and should not be construed as personalized advice as it does not take into account your specific situation or objectives.
Disclosure: I am long NLY.