Back in March, we wrote a piece comparing Annaly Capital Management (NLY) and American Capital Agency (AGNC) and how AGNC appeared to be a better buy, in spite of leverage concerns. This article looks at all the numbers again, 4 months after the last piece was published.
PE Ratio: NLY is trading at 30 earnings while AGNC is still trading at about 6 times earnings. The PE gap between the two has reduced since the last article due to NLY reporting better than expected results.
Payout Ratio: While REITs always have a high payout ratio, NLY's current payout ratio (current dividend/current EPS) is an out of the world 392%. AGNC's payout ratio is a more manageable 75%. That leads us to the next point.
Current Yield: For those looking at establishing new positions or even adding to their existing positions, the current yield in AGNC of 14.4% is higher than NLY's 13. Both stocks have appreciated in price per share since the last comparison article and that shows in the dropping yield. Many expected Annaly to cut its dividend but it maintained the same 55 cents per share payout.
Mike Farrell: Back in March, the situation about Mr. Farrell's health was not really clear. Thankfully for himself and Annaly shareholders, a positive report came out about his health condition. Given how respected he is in this space, his presence and good health is critical for Annaly going forward.
Profitability Metrics: AGNC continues to stand clear of NLY if we look at profitability metrics like profit margin and operating margin. But the difference between the two has come down. Both REITs also have much more cash per share now than when the last article was published. AGNC cash per share is more than 50% of the price per share, while Annaly's is at 28%.
AGNC | NLY | |
Profit Margin | 92% | 63% |
Operating Margin | 94% | 71% |
Conclusion: AGNC still appears to be a better bet right now by looking at all these metrics. However, on the business side of things, AGNC's higher leverage is still a concern, while NLY is closing in on the gap between the two companies in all the numbers discussed above. The most encouraging things for NLY investors have been the good news about Mr. Farrell as well as the fact that NLY did not cut its dividend during what was undoubtedly a tough phase for it. With rates expected to be low for some more time, its still not too late to get into these names.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: Got a limit order placed for NLY at $16 and AGNC at $33.
