Is Annaly Now A Momentum Stock?

Jun.25.12 | About: Annaly Capital (NLY)

Could it possibly be that Annaly (NYSE:NLY) has become a momentum play as well as a great dividend stock? I have held on to this stock through thick and thin, but the recent share price action has me quite happy that we might be looking at a short term momentum trade as well as a long-term dividend investment!

Annaly Capital Management, Inc. (<a href='' title='Annaly Capital Management, Inc.'>NLY</a>)

On Friday, June 22, the stock jumped $0.17/share (we have not seen a one-day jump like that in quite some time). Now, in the past the price has run up nicely prior to ex-dividend day, but recently this stock has outperformed the market with some rather stellar upward momentum.

Even today, with a rather significant sell-off, shares of NLY held up far better than the market averages.

On March 28, the share price sat at $15.57, and closed today, June 25, at $17.12/share. That is a 10% move to the upside in about two-and-a-half months!

The S&P closed at 1405 on March 28 and closed today at 1313. That is a drop of about 6% during that same time frame. Annaly has outperformed the S&P by more than 16%, and that is a momentum play.

Now, I am not saying that you should run out and buy this stock at the open tomorrow, but it does have one full day of trading left prior to going ex-dividend. I think it might be something to ponder, at the very least. Keep in mind that you could capture the dividend and, if my opinion proves to be accurate, the $0.55/dividend drop in price on Wednesday might be made up very quickly.

Fundamentals Plus Momentum Could Move the Share Price Higher

I certainly would consider this stock for a long-term buy and hold with an eye for capital appreciation as well as the dividend right now. The fundamentals have been quite positive as well, as noted in my most most recent article:

  • ZIRP (zero interest rate policy by the Fed) is still in place until at least late 2014.
  • The yield spread between the two-year and 10-year bond is wide enough for Annaly to continue to make profits.
  • Operation Twist was extended though the rest of this year and, quite frankly, it has helped keep the longer end of the yield curve quite stable, and even if it widens due to a lack of impact it will help Annaly with more stability.
  • Annaly increased it's leverage from 5.4-5.8 this year and that could be reflected in higher dividends and at the very least continue to maintain the current dividend.
  • Insiders have been selecting shares over cash when exercising options and not one share has been sold by any of them.

You can also refer to this article to evaluate some of the risks involved, which also gives us the reward.

My Opinion

With the recent insider buying (and not a single share sold, mind you) that we have seen, Annaly management certainly likes the prospects of the stock right now. That might not only mean that the dividends are in great shape, but just maybe Annaly's share price could be headed higher.

Take a look at it. Is it conceivable that the share price pop over its high of $21.15/share set back in 2002? I don't know, but it certainly appears to have that special "momentum" gleam to it right now!

Disclosure: I am long NLY.