Entering text into the input field will update the search result below

NLY-G Should Be Swapped For NLY-F Or NLY-I: A Recent Subscriber Post

Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.


Seeking Alpha Analyst Since 2013

We post our portfolio for you. You also get real-time alerts on every trade we place. Our reasoning for placing a trade is explained in clear English. You can even see the exact trades with the images we include from our stock accounts. We don’t offer you several different “portfolios”, instead, we show you exactly what we own, when we bought it, and how we are doing in that position. We make it simple for investors to follow our strategy. 

You’ll find several reports on The REIT Forum that don’t get posted to the public side of Seeking Alpha. Many of our public reports are dramatically reduced versions of subscriber articles. If you enjoy our public articles, you’ll love the content we keep for subscribers.


  • Recent share price movements for NLY-G have been much too favorable. Shares of NLY-G trade about a dime below shares of NLY-F and NLY-I.
  • This is absurd since the floating rate on NLY-G is significantly less favorable than the floating rate on NLY-F or NLY-I. This is a home run swap opportunity.
  • The best choice between the three is NLY-I, though it is only slightly ahead of NLY-F.
  • NLY-I  and NLY-F will have floating rate dividends that are about $.20 per share per year higher than NLY-G when all shares are floating.
  • Investors who own NLY-G and want to continue owning the NLY preferred shares should look at switching to NLY-F or NLY-I.

The article below is copied directly from the article sent to subscribers yesterday. If you like this analysis, consider taking a free two-week trial of our service:

Image result for free two week trial

Dear New Member,

Welcome to the service! You’ll find a wealth of research and tools available for subscribers. This article is filled with links to several of the resources we provide for subscribers.

Latest Portfolio Update and Market Update

Our prior portfolio update was published on February 4th, 2020.

Click HERE for the February Portfolio Update


Portfolios & Tools

Our portfolios and tools can all be accessed through Google Sheets using the links under “Investing Resources”. It is on the right side of your screen when you are on the home page for The REIT Forum:

The green arrows highlight our core Google Sheet pages.

What’s in those sheets?

The first 8 with green arrows are:

Tab Name


Safe Income Portfolio

Simple ratings on lower-risk securities for safer income.

CWMF's Portfolio

Simple ratings on each position CWMF owns.

CWMF's Trades

All trades we've placed (open and closed).

SK's Trades

All trades Scott Kennedy placed (open and closed).

Preferred Shares

Ratings, targets, and extensive information on preferred shares

Equity REITs

Ratings, targets, and extensive information on equity REITs

Mortgage REITs

Ratings, targets, and extensive information on mortgage REITs


Ratings, targets, and extensive information on BDCs

On the same Google Sheets, you can also navigate to tabs for:

Tab Name


All Stocks

Most U.S. listed REITs, including those we don't cover.

Common Cards

The "Index Card" for every common share we cover.

Preferred Cards

The "Index Card" for every preferred share we cover.

Returns Chart

Our month-by-month, year-to-date, and cumulative returns calculations.


NLY-G (NLY.PG) has remarkably rallied back to about $25.00. This is surprising because it means investors are not fully appreciating the difference in future cash flows between NLY-G and the related preferred shares: NLY-I (NLY.PI) and NLY-F (NLY.PF).

To demonstrate, we’re pulling directly from the preferred shares tab of our REIT Forum Google Sheets:

Source: The REIT Forum

NLY-G is not winning on any valuation metrics. Since these shares are all trading around $25.00, the category called “Floating Yield on Price” becomes dramatically more important. For investors who own NLY-G, would you have any interest in buying the shares if the stripped yield was 4.44% instead of 6.60%? Probably not. Most investors in mortgage REIT preferred shares wouldn’t find a yield materially below 5% to be attractive.

The most common answer to this issue is: “I’ll sell it just before it goes floating”. That leads to a couple challenges. Will there be enough potential buyers who are unaware of the upcoming floating rate? If so, that would be great for sellers (and terrible for buyers). However, even if we ignore the future floating rate, NLY-I is also giving investors a better stripped yield today. That should be a strong factor helping NLY-I’s share price, but it hasn’t been. If investors assumed the shares were going to be called and therefore the floating rate wouldn’t matter, they would be better off buying NLY-F than NLY-G since they would get a superior yield to call.

The Difference

If shares are not called, then we see a material difference in cash flows after the floating rates kick in. When each share is floating, the dividends for NLY-F and NLY-I will be about $.20 per share per year higher. That’s material and it is absolutely not reflected in the current share price. Even if short-term interest rates, one share of NLY-F or NLY-I will still pay out about $.20 per share in additional dividends each year.

The $100k Chart

You can see that the shares were trading at a much wider spread for several months and we considered that spread reasonable:

Source: The REIT Forum

Contrasting Prices

To look at this situation in another light, we put together a few more charts. This first one simply charts the share price at the close:

You can easily see that NLY-F and NLY-I have regularly traded at higher prices than NLY-G and that prior to March 2020, the shares consistently traded at a premium to $25.

I like the next one even better though. In the chart below, we’ve simply subtracted the closing price for NLY-G from the closing prices for NLY-F and NLY-I. This lets us zoom in further and gives us a great position for drawing comparisons:

Source: The REIT Forum

As the floating rate draws closer, investors should be paying more attention to the substantial expected change in the dividend. At this point, there is only one logical basis for an investor choosing to own NLY-G instead of NLY-I or NLY-F. It goes like this:

“I bought these shares near the bottom of the pandemic panic and have an enormous gain in a taxable account.”

If that isn’t the situation, then investors should be looking to swap NLY-G for either of the other shares as quickly as possible.

If the gain on NLY-G is less than "huge", the tax consequences would most likely be worth it. However, we are not going into tax-advising.


Investors who own NLY-G should be taking a serious look at their position. If they want to continue owning the Annaly Capital Management (NLY) preferred shares, they would be much better served by owning NLY-F or NLY-I. We lean slightly towards NLY-I (over NLY-F) when the prices are only separated by a penny. Why? Because NLY-I has a fixed-rate dividend until 6/30/2024 and the fixed-rate dividend is likely to remain materially higher than the floating-rate dividend. NLY-F switches over to the floating-rate dividend starting 9/30/2022. That means investors in NLY-I get about 1.75 additional years of call protection and fixed-rate dividends. After that, the floating rate dividend for NLY-I is only a hair smaller than the floating-rate dividend for NLY-F.

In simple terms, the difference between 4.993% and 4.989% is small enough it doesn’t matter. The difference between 4.989% and 4.172% is large enough that it matters. The gap between NLY-G and NLY-I is about 204 times larger than the gap between NLY-I and NLY-F.

Home Run

This is what we consider one of those “home run swaps”. The valuation gap here is absolutely absurd.

For the investor who owns 1,000 shares of NLY-G the value proposition sounds a bit like this:

“How would you like to pay about $100 today to upgrade from NLY-G to NLY-I?

For a net cost of about $150 today (changing NLY-G for NLY-I at a net cost of $.15 per share) , you get:

For years 1 and 2: An extra $82.50 each year (more than covering the initial cost)

For year 3: Your dividend will be fixed (rather than changing to NLY-G’s floating rate)

Note: The benefit for year 3 can’t be calculated precisely, but is most likely substantially larger than $82.50.

For future years: An extra $200 (roughly) each year thereafter so long as the shares are not called.

Note: The actual prices available to investors will change in real time. If the investor needs to pay a net cost of $.25 per share ($250 on 1,000 shares), that would do little to change the math because this is already so far into the home run category.

When we mention a “net cost of $150”, that would be akin to selling 1,000 shares of NLY-G at $24.94 and buying 1,000 shares of NLY-I at $25.09. The net cost is $25,090 minus $24,940 = $150.


We currently do not have a position in any of the NLY preferred shares. However, we do own some of the common shares from NLY.


Risk Ratings

The following table explains our risk ratings:

Analyst's Disclosure: I am/we are long all shares in cwmf's portfolio (which includes nly common shares).

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.