Last night I read the transcript of the Annaly Capital Management (NLY) conference call. The entire transcript can be read right here on Seeking Alpha. What struck me was the confidence found throughout the conference call, while maintaining the conservative approach that compels investors (especially retirees) to embrace Annaly as a core holding.
A Confident Conference Call
I found Mike Farrell, Chairman, CEO and President, more forthcoming in this call than he has been in a few years. Especially when it came to the economic environment that we are living in, and the challenges that Annaly faces, as well as what the world is confronting.
As Farrell is prone to do in many conference calls, he likes to mix some story telling, mainly of a historical nature, into the relevance of current events.
By going back in time to the civil strife of the USA, during the time of the Confederacy, he related the monetary issues from then, to the European issues of today. One can see the monetary issue similarities of the Euro, to the Confederate monetary issues that were faced back then. The sovereignty of the Confederate States, as it relates to the sovereignty of each European nation within the eurozone is strikingly similar.
We all know what happened to the Confederate dollar and as Farrell points out, if the eurozone does not keep the printing presses running, they can face the same fate; collapse:
"If the Eurozone didn't have the money printing back stop of the modern essential banks, I suggest that the Euro would be no better than the Confederate dollar."
I guess Farrell sees the silver lining, but not without perils to be overcome:
"Today, the United States has a unique historical opportunity to lead the world out of the current mess. But it's my concern that our political system is so polarized that we will be unable to seize the moment and we will encapitalize it for the benefit of all Americans. We are heading towards the fiscal cliff with the election year of date of reform, tax increases, new protections tariffs on China, economic blockades on our end and surprisingly immigration issues. States are attacking Amazon for the collection of internet sales tax."
Annaly Will Deliver Shareholder Value For The Long Term
As all of the issues relate to the market sector that Annaly resides, Farrell made it quite clear that the company will continue to navigate the uncertain monetary climate with the more conservative approach it has employed since the company's inception.
"So, I think when we come in, in the morning what do we look at, where rule number one is don't lose money, right. You try to preserve capital that's how we think about the business. Sometimes, look a lot of people criticize me for the past year for not raising equity. I just summarized in about 10 minutes at the beginning of the call why we didn't do that. As everyone knows from the mountains of articles that have been written about it, if we were to raise a lot more equity I would be paid a lot more money. But we chose not to do that. That is a focus on shareholder value over the long run."
To me, just a regular investor, that comment basically says it all. Annaly has chosen to navigate the uncertainties more conservatively, at the expense of the immediate gain, for the long term preservation of shareholder value.
I think that most investors who appreciate the risks associated with this market sector should embrace this approach. To that end, a 13% dividend yield right now is not too tough to take either.
As one looks at this chart, Annaly is more towards the top end of its dividend payout, than to the bottom. Even with all the ebbs and flows that the dividends have faced over the last 10 years. For me, personally, this shows stability as well as that conservative approach.
This 5 year chart of the share price of NLY also shows relative stability. As with any security, it obviously has had ups and downs. To me, this shows more of a sideways trend overall, and with this type of stock, isn't that what we really love to see?
We own this stock (and any in this sector) for the income stream, and capital appreciation is secondary. When we can have a rather consistent yield of between 10-15% year in and year out, what more could an income seeking retiree ask for.
That being said, take a look at a more recent view of Annaly's stock price:
More money is flowing into this sector overall, and the share price of Annaly has reflected this trend. The insider share purchases can give us more food for thought, and the value of the company itself has increased.
I believe the share price will continue to rise and the dividends will continue to be strong.
Overall, the earnings report, as well as the conference call, has given me a greater level of comfort with this sector-- and specifically, this stock.
Disclosure: I am long NLY.