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Annaly Capital: The Old Squeeze Play Could Hurt This Stock
- I have been focusing on interest rates and QE by the Fed, and now I see another danger sign.
- I might need to re-evaluate my opinion of NLY.
- I need to be aware but I won't panic.
- Optimistically revisiting the dreadful time period of 2007-2009.
- Analyzing Annaly Capital Management with a unique perspective.
- Hedging against long-term interest rate increases.
- Annaly Capital has been covered in depth, but few talk about how it has specifically positioned itself to make money.
- I discuss the actual portfolio holdings of the company.
- I offer my thoughts on its positioning.
Discounted Twice: How Annaly Got Shafted By Irrational Fears Of Interest Rates
- Annaly provides a very strong dividend yield and the opportunity for some significant appreciation from the discount to book value.
- Using book value from the end of Q3 and the closing price for 11/21/2014, the discount is 10.7%.
- MBS yields since the end of Q3 have gone down, which drives asset values up.
- Over the last 9 months, Annaly has been modifying their asset exposure.
- Movements in LIBOR for 2 years, 5 years, and 10 years have all been towards lower yields.
Annaly Needs To Be Monitored As A Dividend Opportunity Stock
- ZIRP is still in place with no clear indication as to when it will end.
- The spread between the 2- and 10-year Treasury notes has remained stable.
- Annaly and other mREITs have had a relatively stable interest rate environment to do business within.
Annaly: A Yield-Strong Investment Option For An Income-Tilted Retirement Portfolio
- Annaly Capital Management is an interesting, high-yield income vehicle that could be combined with various other high-yield investments in a retirement portfolio.
- Annaly's third quarter results and sequential book value decline are not necessarily a reason for concern -- when put into context.
- 2013 sector meltdown has impacted investors' confidence in Annaly and other mortgage REIT players, which now reflects an attractive investment opportunity.
- Annaly offers investors capital appreciation potential in addition to a solid 10.49% dividend yield.
5 Large-Cap Dividend Companies That Offer Very Different Exposures
- Annaly Capital Management has a very strong dividend yield, a discount to book value, and impressive results.
- AMT offers the most potential for dividend growth from operating leverage.
- CAT and MMM have seen their operating margins move in opposite directions, but both have decent yields and are actively repurchasing shares.
- DFS has a low yield, but it’s not bad for the payment industry. Technology improvements by Apple may help to enhance the product.
10.6% Dividend Annaly Capital Management's Calm Attitude May Be Right For This Environment
- NLY turned in an average quarter in Q3 2014. Core Earnings of $0.31 per share covered its dividend of $0.30 per share.
- NLY lost approximately the expected amount of book value from $13.23 to $12.87 per common share as of September 30, 2014 (-2.7%).
- The 10-year US Treasury Note yield down move of -19 bps in Q4 2014 translates into a book value gain for Q4 so far.
- NLY management's strategy seems well tuned to the current situation. This makes one think NLY should do well for the near future.
Annaly Capital: Another Lackluster Quarter For This mREIT Bellwether
- Annaly reports its Q3 2014 results.
- Core earnings rises by a penny to $0.31 per share, though the book value fell by $0.36 per share.
- At current prices, Annaly yields around 10.70% and trades at a 13% discount to book value.
Update: Annaly Capital Management, Inc. Q3 2014 Earnings
- Core earnings of $.31 cents per share are in line with analyst estimates.
- Net interest margin of 1.61% is up from 1.57% in the prior quarter.
- NLY reported a loss on their position in MBS, which was predicted.
- NLY reported a gain on their position in interest rate swaps, which was not predicted.
- My opinion about the company remains unchanged, but I will be doing more digging on what happened with their swaps.
Annaly Capital To Report Earnings On 11/6: My Quick Take
- Consensus EPS of $0.31 suggests an unchanged $0.30 dividend.
- Interest rates environment was mixed during the quarter: negative in the first half, positive in the second half.
- My opinion is that EPS will likely be close to the consensus EPS ($0.31).
How Does Annaly Capital Management, Inc. Pay Such Huge Dividends?
- Mortgage rate movements can be tracked and used to predict changes in portfolio value.
- The 10-year treasury yield can be used as a proxy for movements in interest rate swaps if the interest rate swaps have a high enough weighted average maturity.
- NLY can make significant changes to their debt structure. The structure from the end of Q2 has been used to predict results.
- When the Federal Reserve began quantitative easing, it rattled the mREIT sector.
- Longer-term interest rates were being held down as the Fed kept buying.
- The zero interest rate policy could be the next to go.
A Safer Alternative To Annaly Capital Management Common Stock
- In this falling market, you need alternatives to common stocks.
- Treasury bonds are not attractive.
- Preferred stocks can provide can provide good income with minimal risk.
- Annaly shares have performed solidly during the correction and yield an enticing 10.7%.
- Falling interest rates increase Annaly's book value as the value of its MBS portfolio rises.
- Conversely, falling rates, and the potential for a flatter curve next year, could pressure Annaly's net interest income and thereby its dividend.
- Still at 20% below estimated current book value, Annaly is already pricing in a cut, and is an interesting risk/reward buy.
Retirement Strategy: Consider Adding Annaly For Enhanced Income For Your Retirement Portfolio
- Dividend growth investors will generally own shares in companies that consistently increase dividends year in and year out, and I agree with that approach.
- Active portfolio managers who wish to add an income boost can seek out a few dividend opportunity stocks for various periods of time.
- While selecting a dividend opportunity stock, investors need to be aware that these are not the same as those mega-cap blue chip dividend stalwarts, and need extra scrutiny.
Comparing Annaly Capital Management's BV, Dividend, Risk And Valuation To Several mREIT Peers - Part 2
- As I previously projected, NLY and most of the company’s mREIT peers had declared a stable dividend per share rate for the third quarter of 2014.
- Two mREIT peers who did not have a stable per share rate were CYS with a modest dividend decrease and WMC with a minor dividend increase (percentage wise).
- NLY continued to have yield percentages modestly below the agency mREIT average, thus inherently lowering the risk of dividend reductions throughout the remainder of 2014 going into 2015.
- AGNC continued to have yield percentages slightly below the agency mREIT average while ARR and CYS continued to have yield percentages above the agency mREIT average.
- My current buy, sell, or hold recommendation on each mREIT company within this analysis is stated in the “Conclusions Drawn” section of the article.
Annaly Capital Management: Should You Buy Its 11% Dividend Yield?
- Annaly is currently offering an 11% dividend yield and is trading at a 15% discount to its book value.
- The dividend of Annaly has historically experienced great volatility, but the sum of the dividends has been extraordinary.
- However, the company has invested 80% of its funds in 30-year fixed-rate securities, and hence it faces great risks from the upcoming hikes in the interest rates.
- On the other hand, as the Fed has become increasingly friendly to the market since the last recession and does not want to surprise it, its moves have become predictable.
- Therefore, if the management of Annaly is fairly competent, it will hedge its positions in time and hence it will be able to protect its profit.
Yesterday, 4:12 PM
Tue, Dec. 9, 12:57 PM
- Unable to catch a bid for a few sessions, mortgage REITs (REM +1%) have turned higher in afternoon action, led by Annaly (NLY +0.7%) and American Capital Agency (AGNC +1.5%).
- Helping are jitters in the stock market (though U.S. averages are well off the lows), and a 10-year Treasury yield that's retreated all the way to 2.21% after hitting the mid-2.30s on the back of Friday's strong jobs number.
- Armour (ARR +1.1%), Two Harbors (TWO +0.9%), CYS Investments (CYS +1.4%), Invesco (IVR +1.8%), American Capital Mortgage (MTGE +1%), Hatteras Financial (HTS +2%), Capstead (CMO +2%).
- Other ETFs: MORT, MORL
- Also showing some green are the recently beaten-up BDCs, including Prospect Capital (PSEC +0.2%), Fifth Street Finance (FSC +0.2%), Ares Capital (ARCC +0.5%), FS Investment (FSIC), Triangle Capital (TCAP +1.7%).
- ETFs: BDCL, BDCS, BIZD
- Previously: Money flows back into fixed income (Dec. 9, 2014)
Fri, Dec. 5, 10:12 AM
- This morning's big jobs number has pushed yields higher at both the short and long end of the curve, and has mortgage REIT investors mulling losses on MBS holdings.
- The mREIT ETF (REM -0.6%) Others: MORT, MORL
- Annaly (NLY -1.2%), American Capital Agency (AGNC -1%), Armour Residential (ARR -0.6%), Chimera (CIM -0.6%), MFA Financial (MFA -0.9%), Western Asset (WMC -1.3%).
- Previously: Short end of yield curve on the move after jobs number (Dec. 5, 2014)
- Previously: Bonds and dollar higher, gold slumps after strong jobs report (Dec. 5, 2014)
Wed, Nov. 19, 3:42 PM
- A check of the mortgage REITs following FOMC minutes which shows the discussion moving a bit more seriously towards rate hikes finds the sector (REM -0.5%) modestly lower.
- Individual names: Annaly (NLY -0.3%), American Capital Agency (AGNC), CYS Investments (CYS -0.3%), Invesco Mortgage (IVR -0.9%), New York Mortgage Trust (NYMT -0.4%), Hatteras Financial (HTS -0.8%), MFA Financial (MFA -1%), Capsteam Mortgage (CMO -0.6%), Ellington Residential (EARN -0.4%).
Wed, Nov. 12, 6:03 PM
- Annaly Capital (NYSE:NLY) subsidiary Annaly Commercial Real Estate Group, in partnership with JADD Management, closes on the purchase of an 11-property, 1.48M square foot portfolio of grocery-anchored shopping centers.
- JADD Management is located in Rochester, NY and its portfolio - while spanning a number of states - remains heavily concentrated in upstate New York, so that should give some clue as to the location of the purchased shopping centers.
- As of the end of Q3, Annaly had about $1.6B invested in commercial real estate loans and properties.
- Source: Press Release
Wed, Nov. 5, 4:16 PM
- Q3 core earnings of $308.6M or $0.31 per share vs. $300.4M and $0.30 in Q2. Dividend is $0.30.
- Book value per share of $12.87 vs. $13.23 at the end of Q2. Today's close of $11.30 is a 12.2% discount to book.
- Net interest margin of 1.61% gains four basis points from Q2. CPR of 9% rises 200 basis points.
- Agency MBS portfolio of $82.8B vs. $82.4B at end of Q2. Commercial real estate debt and preferred equity portfolio of $1.6B. Investments in actual commercial real estate of $74.4M. Commercial investment portfolio represents 11% of stockholders equity. Weighted average yield on commercial debt investments of 9.23% up from 8.93% in Q2.
- Leverage of 5.4:1 vs. 5.3:1 last quarter.
- Conference call tomorrow at 10 ET
- Previously: Annaly Capital Management EPS in-line
- NLY +0.2% after-hours
Wed, Nov. 5, 4:09 PM
Wed, Oct. 29, 1:43 PM
- Fed purchases of mortgage-backed securities are ending today, but reinvestments are likely to keep a firm bid in the market, says Deutsche's MBS team. The "real risk" to the MBS market won't come until the Fed ends reinvestments - early 2016 at the soonest, and maybe not until 2017.
- QE's end, says the team, leaves the Fed with $1.7T in MBS holdings and private investors with just $3.5T. The Fed's massive holdings - 1/3 of the universal amount, but 1/2 of dollar duration - keep a source of volatility out of the market.
- The end of the Fed as a net buyer will be about the first time since the early 1990s when MBS haven't been getting a bid from either the GSEs, Treasury, or Fed.
- ETFs" REM, MORT, MORL
- Names of interest: Annaly (NLY -1.6%), American Capital Agency (AGNC -2.5%), Armour (ARR -1.2%), Hatteras (HTS -1.6%), CYS Investments (CYS -1.7%)
Thu, Oct. 9, 1:55 PM
- The Fed is nervous higher rates will boost volatility, put a dent in asset (stock and home) prices, and push the U.S. into recession, says Wells Fargo analyst Joel Houck. With the Fed thus trapped from hiking, Houck remains bullish on the mREITs (REM -0.1%), notably American Capital Agency (AGNC +0.7%), CYS Investments (CYS +0.1%), Hatteras Financial (HTS), and Annaly Capital (NLY +0.1%).
- Previously: Mortgage REITs see more gains as averages slide
Thu, Oct. 9, 10:40 AM
- It's been a good week for mortgage REITs (REM +0.7%) which rose on Tuesday as the broad market tumbled and brought yields down with it, rose more on Wednesday, this time alongside a major broad market rally on dovish FOMC minutes, and are on the move higher again today as the averages again head south.
- Down to 2.28% earlier in the session (a 16-month low), the 10-year Treasury yield is now flat on the day at 2.32%.
- This week's strong move comes following a tough September in which the mREITs gave back a nice chunk of their YTD gains.
- Annaly (NLY +1.2%) is up nearly 5% over the last four sessions. American Capital Agency (AGNC +1.5%) is ahead more than 6%.
- Others: Armour (ARR +1%), Chimera (CIM +1%), CYS Investments (CYS +1.2%), New York Mortgage (NYMT +1.3%), Anworth (ANH +0.8%), Dynex (DX +1%), Javelin (JMI +1.5%), Five Oaks (OAKS +0.9%).
- Other ETFs: MORT, MORL
Tue, Oct. 7, 11:12 AM
- Sector giants Annaly Capital (NLY +1.2%) and American Capital Agency (AGNC +1%) are pacing gains in the mortgage REIT sector (REM +0.3%) on a day when the major averages are lower by about 0.75% and the 10-year yield at 2.39% has about erased all of its big post-Labor Day gain.
- Additional ETFs: MORT, MORL
- Among other names, there's CYS Investments (CYS +0.5%) - whose management has been the most publicly skeptical of the higher interest rates meme.
Fri, Sep. 19, 3:32 PM
- Leading the mREIT sector (REM +0.2%) higher this session are American Capital Agency (AGNC +1.9%) and American Capital Mortgage (MTGE +1%) after the two maintained their $0.65 per share quarterly payout last night. Neither move should have been a surprise as both comfortably out-earned their dividend last quarter.
- Also maintaining its payout ($0.30 per shares) after the bell yesterday was Annaly Capital (NLY +0.8%).
- The sector is also getting a break from rising rates with the 10-year Treasury yield lower by four basis points to 2.58%
- ETFs: MORT, MORL
Thu, Sep. 18, 4:34 PM
Thu, Sep. 18, 1:10 PM
- The entire sector is in the red, but the biggest declines are being seen in the industry giants, about the only spots large investors can move a lot of shares quickly: Annaly Capital (NLY -1.6%), American Capital Agency (AGNC -1.6%).
- Yesterday's FOMC statement may have left in the "considerable period" language, but the committee remains on course to begin a rate hike cycle in less than a year.
- Further, the selloff on the long end of the curve can has reached the sizable stage - the 10-year yield is up 32 basis points in a month, and has now erased about all of the summer's decline. Book values could take a hit (though hedging is likely to ease the pain).
- REM -0.7%
- Other ETFs: MORT, MORL.
- Other names: Armour (ARR -1.3%), Invesco (IVR -0.7%), Hatteras (HTS -3%), Capstead (CMO -0.3%), Western Asset (WMC -0.4%)
Wed, Sep. 17, 2:51 PM
- Another $10B taper this month brings QE to just $5B monthly, an amount the FOMC expects to go down to zero with its next policy meeting. The "dots" shifted somewhat higher - meaning maybe a slightly earlier start to Fed rate hikes and a higher level of Fed Funds at the end of the next few years, with the median forecast being 2.9% at the end of 2016.
- Mortgage REITs (REM +0.2%) have been under pressure in the sessions ahead of the FOMC, and are mostly snoozing through today's news.
- Annaly (NLY -0.1%), American Capital Agency (AGNC +0.1%), CYS Investments (CYS +0.2%), New York Mortgage Trust (NYMT +0.5%), Dynex (DX +0.8%), Ellington Residential (EARN +1.2%), Javelin (JMI +1.3%).
- Previously: FOMC statement and projections lean hawkish
- Previously: Yellen press conference: Falling UE rate still masking labor market weakness
Tue, Sep. 2, 2:26 PM
- REITs and other so-called "shadow bankers" for the last several years have used captive insurers to join Federal Home Loan Banks, thus getting access to more dependable financing and better terms than they otherwise could.
- The FHFA for some time has voiced its concern over the practice, and under new rules just proposed, would sunset those existing memberships over a five year period.
- ETFs: REM, MORT, MORL
- Two Harbors (TWO -1.8%), Invesco Mortgage (IVR -1.9%), Hatteras Financial (HTS -1.2%), Dynex Capital (DX -1.1%), PennyMac Mortgage (PMT -1.5%), Annaly Capital (NLY -0.8%), American Capital Agency (AGNC -0.3%).
NLY vs. ETF Alternatives
Annaly Capital Management, Inc., owns, manages, and finances real estate related investments, including mortgage pass-through certificates, agency callable debentures, collateralized mortgage obligations and other securities.
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