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Will Annaly Fly Higher Through 2012?

With half of 2012 in the record books, it's important to take a look at whether the stocks that interest you can live up to their full potential. By making sure you know about a company's future plans and possible challenges, you can make a better decision about whether it's a smart investment for your portfolio.

Today, let's take a look at Annaly Capital (NYSE: NLY  ) . As we saw in our look at Annaly Capital last month, the mortgage REIT has put together a pretty strong advance so far in 2012 even as narrow interest rate spreads have caused it to cut its dividends in the past couple of years. Can Annaly keep delivering double-digit dividend yields and hold its own with its share price? Let's take a quick look at Annaly Capital's prospects for the rest of the year and beyond.

Stats on Annaly Capital

Average Stock Price Target $16.94
2012 EPS Estimate $1.97
2013 EPS Estimate $2.05
2012 Revenue Growth Estimate (2%)
2013 Revenue Growth Estimate 5.3%
CAPS Rating (out of 5) ****

Source: Yahoo! Finance.

Where will Annaly Capital go from here?
Annaly finds itself in same boat as American Capital Agency (Nasdaq: AGNC  ) , ARMOUR Residential (NYSE: ARR  ) , and a host of other mortgage real estate investment trusts that focus on agency-backed securities. Low interest rates don't look like they're going away anytime soon, and as long as the Federal Reserve doesn't work too hard to bring long-term rates down toward the near-zero levels on short-term rates, the spread that Annaly relies on should remain more or less intact.

One threat, however, could come from a local government proposal to use eminent domain to buy mortgage loans, which the government would then restructure to get rid of problems with underwater mortgages. Under that scenario, Annaly and its peers might have their mortgage-backed securities essentially compromised. Some could argue that non-agency-backed loans like the ones that Chimera Investment (NYSE: CIM  ) and Invesco Mortgage Capital (NYSE: IVR  ) have as part of their portfolios might be more likely candidates for eminent domain, but the uncertainty from the inevitable legal challenges could prove to be a headache for Annaly and the whole industry.

That may be why analysts don't expect much price appreciation from Annaly. But with a 13% dividend yield, Annaly doesn't need to have its stock price go up in order to give investors a solid return.

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Click here to add Annaly Capital to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. The Motley Fool owns shares of Annaly Capital. Motley Fool newsletter services have recommended buying shares of Annaly Capital. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.

Read/Post Comments (2) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 23, 2012, at 7:35 PM, NCRICK wrote:

    I am long NLY, AGNC, IVR, TWO and a few other mREITs. I acknowledge the risk factor and to me the reward is worth the risk. I don't think the eminent domain issue is a risk to the mREITS. Most municipalities don't have the money to fund these schemes. The federal gov't won't begin to create any legislation to fund these programs until 2013, if ever. A worst case scenario is they get paid the balance even if the property is "sold" for less. That is, of course, unless the gov't comes up with a GM type program which is (and was) patently unconstitutional.

  • Report this Comment On July 25, 2012, at 12:34 AM, wfpriebe wrote:

    I think a bigger danger to the mREITs' dividend and stock price is the national deficit. We just can't keep printing money like we have and not enter a Jimmy Carter inflation type business environment. As money inflates, the cost of borrowing will go up faster than rents can be raised. The mREITs will see margins narrow or dissappear altogether.

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Related Tickers

10/28/2016 11:35 AM
NLY $10.21 Up +0.02 +0.15%
Annaly Capital Man… CAPS Rating: ****
AGNC $19.91 Up +0.02 +0.08%
American Capital A… CAPS Rating: ***
ARR $22.57 Up +0.10 +0.45%
ARMOUR Residential… CAPS Rating: ***
CIM $15.61 Up +0.11 +0.71%
Chimera Investment CAPS Rating: ***
IVR $14.94 Down -0.01 -0.03%
Invesco Mortgage C… CAPS Rating: *****