Annaly (NYSE:NLY) is entering the rarefied air of momentum stocks it appears. As I pointed out in this article, the recent upward movement of its share price has significantly outperformed the overall markets, as well as keeping its hefty dividend.
The Fundamentals Remain The Same
- 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. Even if it widens due to a lack of impact it will help Annaly with more stability.
- Annaly increased its leverage from 5.4-5.8 this year; 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.
The Share Trading And Price Action Is Different
Going into today's trading, Annaly went ex-dividend to the tune of $.55/share, so the stock actually opened at $16.55. It did not take long for the momentum to continue, and at the close it stood at $16.72/share. It "made up" $.16 of the $.55 dividend on ex dividend day.
In recent years there has been a run up to ex-dividend day, then somewhat of a sell off post ex dividend, but today was unique as investors continue to buy shares and bid the price up.
We "re-couped" nearly 30% of the dividend on the very day the stock went ex dividend, and that is what I would call momentum. It will be interesting to see if it continues, and in light of a share price above book values, Annaly could have an SPO at some point.
I will say that with a BV of roughly $16.15, vs. a share price of $16.72 today, we could see one at some point, however most investors in this sector have come to expect those secondary offerings. If any investor was looking for a lower share price to enter or add to a position here, then they probably would not have been bidding the stock up on this day.
The volume today was above Annaly's 90 day average volume by about 7% (10.3 million vs 9.6 million) so it cannot be said that the price movement occurred on a light trading day either.
All of the signs are pointing to Annaly being a momentum stock, a great dividend stock, and income seeking investors are flocking to the entire sector as interest rates continue to be held down by government policies.
Not only is this affecting longer-term Treasury yields, but it is creating a perfect environment of rare stability in the mREIT sector. To me that translates into an investment that is a bit less risky right now, and it seems to be the income investment of choice for many more investors.
We still need to monitor all of the risks that a sudden higher interest rate environment has, and we need to keep an eye on policy from Washington. If everything remains as is, I think we are in really good shape for the foreseeable future.
Evaluate this opinion for your individual style, and remember to do your own research before jumping into any stock by virtue of anyone's opinion.
Disclosure: I am long NLY.