In the current economic environment, Annaly Capital Management (NLY) is a valuable asset that any type of investor should add to their portfolio. Shareholders will benefit from the high dividend and should have confidence in Annaly Capital Management's expertise in the industry and mature understanding for the evolving economic conditions.
In this article, I will explain why shareholders should hold this stock at least until the spring of 2013. Interested investors are advised to buy into this stock now. The current political situation and Federal Reserve's stance are creating a stable environment for steady increases in returns for shareholders of Annaly Capital Management.
Annaly Capital Management's sales growth decreased by more than 9 percent from the previous year, but sales growth has increased by more than 50 percent from the previous quarter. Its beta is under 0.5, while the PEG ratio is over four. The current price is more than eight times earnings; this is an increase from over seven times earnings in the trailing 12 months.
Annaly's return on equity has decreased by less than 2 percent over the past three quarters. Net margin has decreased by almost 7 percent over the last three quarters. The debt to equity ratio has improved since the end of 2011 when it was 0.10. Its current ratio has been relatively stable over the past three quarters. Annaly Capital Management's dividend yield is around 13 percent, this currently equates to an annual rate of $2.20.
Annaly Capital Management's growth rates over the past five years have been significantly better than the industry average. This year and looking forward, its projected growth rates are less than the industry average. Annaly Capital Management's price to earnings ratio is under the industry average, while its price to book ratio is slightly above the industry average. More importantly, its return on equity is almost 50 percent higher than the industry average.
Annaly's current dividend yield is also around 50 percent greater than the industry average. Despite the typical ebbs and flows of the market, Annaly Capital Management's stock price steadily increased by around 7 percent in the first six months of 2012. This increase in price is impressive for a stable REIT in a struggling economic environment. Recent news and developments indicate that Annaly's stock price can continue increasing in value beyond 2013.
The Fed's extension of Operation Twist and suppression of interest rates are creating an environment of revenue growth for Annaly and other REITs like American Capital Agency (AGNC) and MFA Financial (MFA). These REITs have comparable dividend yield rates at around 12.5 percent and 15 percent, respectively. The Fed's zero interest rate policy could be helping REITs earning potential into 2014. Annaly will continue to give substantial dividends through an economic environment that is helping increase its stock price as well. The impending election and hesitance in Washington regarding the budget legislation is extending the ability for REITs to maintain substantial interest spreads to sustain earnings.
Mortgage originations refinancing increased by over 20 percent from 2011. From the last quarter of 2011, the House Price index increased by 0.6 percent. The latest dynamics in the real estate market have led to increased mortgage financing, in turn fostering increased earnings and growth for Annaly. During the first quarter of 2012, Annaly was able to benefit from an interest spread exceeding 1.7 percent.
Earnings for Annaly are expected to increase throughout the remainder of the year. At 1.05, Annaly currently has a higher price to book value than Capstead Mortgage (CMO), but it does have a lower ratio than MFA Financial Inc. Annaly has almost $2.5 billion in cash from operations, while it paid less than $550 million in dividends. Shareholders can feel confident in Annaly's ability to consistently increase and payout substantial dividends for the long term.
Optimism for the economy and fiscal activity is also expected to increase Annaly's price in the stock market. Annaly has consistently outperformed the S&P for over two months. More people are buying homes now than in the past two years. An improvement in consumer spending and lower gas prices also bode well for an increasing stock price for Annaly. The increased rate of insider buying also supports the belief that management and analysts have that the future of Annaly Capital Management is promising under the current economic conditions. This is an ideal defensive stock because there are a variety of divergent factors that can lead to an uptick in its stock price while it continues to payout a substantial dividend yield.
In the earnings call for Q1 of 2012, Annaly's management expressed a mature comprehension for the evolving financial, economic and political situations - both domestically and internationally. The ability to anticipate and apply foresight in these tumultuous times is the main catalyst for Annaly positioning itself to maximize earnings, while protecting its divergent investments. Management is focused on developing the liability side of its balance sheet in anticipation of the developing situation with the central banks in Europe.
Management also noted the increasing number of retiring baby boomers that will be selling a total of 30 million homes over the next few years, while the population creates12 million new household formations. This impending oversupply and increasing fees from the FHA are dynamics that are driven by political policy and will greatly affect Annaly's earnings in the long-term future. The ability to anticipate these changes and get out in front of them beforehand is imperative to the long-term fiscal health of Annaly, MFA Financial, Redwood Trust (RWT) and other diversified REITs.
Shareholders should consider Annaly a hold for at least 12 to 18 months, and potentially beyond 2014, depending on the election and impending legislation. Interested investors should consider Annaly a buy now in order to benefit from substantial dividends and a potential projection of strong long-term growth from this REIT.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.