Why You Shouldn’t Be Surprised If Annaly Capital Management’s Dividend Is Eventually Cut in Half

Thanks to the relationship between interest rates and Annaly's dividend, it seems inevitable that the high-yielding mortgage REIT will continue to cut the size of its quarter distributions.

Jul 4, 2014 at 12:41PM


It's inevitable that Annaly Capital Management (NYSE:NLY) will continue to cut its quarterly dividend. And even though it's already done so multiple times over the last two years, it still has a long way to go. 


The reason for this is simple. Annaly makes money by arbitraging interest rates. It borrows money at low short-term rates and then uses the proceeds to buy mortgage-backed securities, which are subject to higher long-term rates.

As a result, Annaly's profitability is a function of the so-called spread between long- and short-term interest rates. When the spread is large, Annaly makes more money and thus pays a higher dividend. But when the spread contracts, it makes less money and must accordingly cut its payout.

Where are we right now? Thanks in large part to historically low short-term rates, the interest rate spread remains elevated. But this won't last forever. 


It's for this reason that Motley Fool contributor John Maxfield urges current and prospective investors in Annaly to brace themselves for additional dividend cuts in the months and years ahead.

Buy these high-yield stocks instead of Annaly
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

John Maxfield has no position in any stocks mentioned. 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.

A Financial Plan on an Index Card

Keeping it simple.

Aug 7, 2015 at 11:26AM

Two years ago, University of Chicago professor Harold Pollack wrote his entire financial plan on an index card.

It blew up. People loved the idea. Financial advice is often intentionally complicated. Obscurity lets advisors charge higher fees. But the most important parts are painfully simple. Here's how Pollack put it:

The card came out of chat I had regarding what I view as the financial industry's basic dilemma: The best investment advice fits on an index card. A commenter asked for the actual index card. Although I was originally speaking in metaphor, I grabbed a pen and one of my daughter's note cards, scribbled this out in maybe three minutes, snapped a picture with my iPhone, and the rest was history.

More advisors and investors caught onto the idea and started writing their own financial plans on a single index card.

I love the exercise, because it makes you think about what's important and forces you to be succinct.

So, here's my index-card financial plan:


Everything else is details. 

Something big just happened

I don't know about you, but I always pay attention when one of the best growth investors in the world gives me a stock tip. Motley Fool co-founder David Gardner (whose growth-stock newsletter was rated #1 in the world by The Wall Street Journal)* and his brother, Motley Fool CEO Tom Gardner, just revealed two brand new stock recommendations moments ago. Together, they've tripled the stock market's return over 12+ years. And while timing isn't everything, the history of Tom and David's stock picks shows that it pays to get in early on their ideas.

Click here to be among the first people to hear about David and Tom's newest stock recommendations.

*"Look Who's on Top Now" appeared in The Wall Street Journal which references Hulbert's rankings of the best performing stock picking newsletters over a 5-year period from 2008-2013.

Compare Brokers