3 Reasons Annaly Thinks the Future Is Very Bright

After a rocky 2013 for the mREIT sector, there is reason to believe the future is bright for the biggest and best.

Mar 4, 2014 at 7:29AM

Tradong

Annaly Capital Management (NYSE:NLY), along with the rest of the mREIT sector, did not have a very good 2013, with shares down more than 30% for the year. But the bad times appear to be over -- that is, if you believe what management had to say.

1. Low leverage means potential
Annaly's leverage ratio is now just five to one, which is extremely low on a historical basis, and well below most of its peers in the sector. This leaves the company with tremendous purchasing power to take advantage of future opportunities, some of which have already begun to present themselves. In fact, to bring their leverage up to a ratio of seven to one (still well below most peers), Annaly could purchase $24 billion in additional assets.

Annaly's CEO mentioned with new money spreads approaching 200 bps (2%), the company plans to considerably add to its positions over the next few quarters as opportunities present themselves.

2. Better uses of capital than buybacks
Many of Annaly's peers, including the very widely held American Capital Agency (NASDAQ:AGNC) have been buying back shares at a fairly aggressive pace in order to take advantage of the fact that shares are trading for well below their book value. However, Annaly disagrees with this strategy, stating that with new money spreads on the rise, it will be a much more efficient use of capital to increase leverage and add assets to the portfolio.

3. Commercial real estate means diversity
Annaly has grown its commercial real estate investments tremendously over the recent quarters, and it now equals about 14% shareholder equity. During the conference call, the company said it was in talks with a "very large holder and originator of real estate" that would give Annaly exclusive access to certain securitizations.

Annaly is allowed to allocate 25% of its capital to assets other than agency mortgage-backed securities (MBSes), and management has made it very clear that they intend to continue growing the company's commercial portfolio.

Is now the time to buy Annaly?
No investment that yields over 10% is without risk, and Annaly does have a few obstacles to overcome. For instance, supplies of agency MBSes are rather low right now and are projected to stay that way, at least for the short term.

Mortgage REITs in general are pretty volatile and extremely sensitive to interest rates and overall monetary policy. Over the long run, these can produce excellent income, but investors need to be prepared to ride out some ups and downs along the way.

Annaly is the best-in-breed of the mREITs and has excellent management that has acted very responsibly with their leverage ability in order to maximize future benefits for shareholders. With such low leverage right now and high purchasing power, combined with the fact that interest rate spreads have been on the rise lately, now may be a great time to get in.

Sell

Is Annaly the best dividend stock you can buy?
One of the dirty secrets that few finance professionals will openly admit is the fact that dividend stocks as a group handily outperform their non-dividend paying brethren. The reasons for this are too numerous to list here, but you can rest assured that it's true. However, knowing this is only half the battle. The other half is identifying which dividend stocks in particular are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.

Matthew Frankel owns shares of Annaly Capital Management. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. 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 Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers