Annaly Capital Management (NYSE:NLY) announced its second decent quarter in a row and increased its dividend to $0.20 for the quarter, up from $0.11 last year.

Core earnings per share for the quarter -- excluding impairment charges, and gains and losses on security sales and interest rate swap terminations -- increased to $0.26 from $0.16 last year.  The company also completed the largest capital raise in its history, and CEO Michael Farrell announced that Annaly expects to invest all of the proceeds in the coming quarter.

These days, the mere mention of the word "subprime" gives investors the jitters. Annaly competitor Impac Mortgage Holdings (NYSE:IMH) even issued a press release reminding people that it isn't a subprime lender. Annaly's CEO recently informed investors that Annaly only invests in Agency triple-A mortgage-backed securities. Most investors believe that MBS that are issued or guaranteed by Fannie (NYSE:FNM), Freddie (NYSE:FRE), and Ginnie are implicitly backed by the U.S. government, although only Ginnie Mae can officially make that claim. In other words, if those guys default, you'll probably have a lot more to worry about than your investment in Annaly.

As a result, Annaly's job is to manage interest rate risk, and the company did a good job of that in the past quarter. The annualized yield spread (the difference between what Annaly earns on its assets and what it pays on its liabilities) increased 26 basis points over the prior-year period, to 0.58%, and increased 9 basis points over the previous quarter, which helped the company keep the run-rate dividend yield at a healthy 5%.

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Fool contributor Emil Lee is an analyst and a disciple of value investing. He doesn't own shares in any of the companies mentioned above. Emil appreciates your comments, concerns, and complaints. Fannie Mae is a Motley Fool Inside Value recommendation. The Motley Fool has a disclosure policy.