Not all dividends are created equal. Here, we'll do a top-to-bottom analysis of a given company to understand the quality of its dividend and how that's changed over the past five years.
The company we're looking at today is Annaly Capital Management
Industry
Annaly, along with competitors including Chimera Investments
Annaly Capital Management Total Return Price Chart by YCharts
Dividend
To evaluate the quality of a dividend, the first thing to consider is whether the company has paid a dividend consistently over the past five years, and if so, how much it has grown.
Annaly Capital Management Dividend Chart by YCharts
Annaly's dividend rose steadily from 2007 to 2010 before dropping this year, for a five-year average growth rate of 39.2%.
Sustainability
For a mortgage REIT, the most important measure to follow is a company's interest rate spread. This is the difference between the rate at which the company borrows money and the rate at which it lends out money.
Source: S&P Capital IQ.
Annaly's interest rate spread, while declining, is still very high and will likely remain so until interest rates begin rising again. As the Federal Reserve has stated that it won't raise rates until 2013 at the earliest, you have some time before this will happen.
Alternatives
Source: S&P Capital IQ.
There are some alternatives out there in the industry. Invesco Mortgage Capital's
Another tool for better investing
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