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Solid News From 1 of the Market's Hottest Dividend Plays

Jim Royal
November 2, 2011

Annaly Capital (NYSE: NLY  ) is the largest mortgage REIT and generally regarded as the best-run, so I watch its reports on the state of the sector with some interest -- especially any comments from CEO Michael Farrell.

For the quarter, Annaly reported adjusted earnings of $622.8 million, or $0.65 per share. That compares to $0.70 per share in the year-ago quarter and $0.71 in the second quarter 2010.

Part of the decline in per-share earnings is due to the recently completed secondary offering of 138 million shares, which raised $2.4 billion in fresh capital for the company. The offering suggests the company is still seeing plenty of opportunities to deploy its capital effectively, a good sign for investors in this dividend giant.

With shares outstanding at nearly 970 million, share count has exploded since Q2 2010, when the company had just 560 million stubs. But Annaly's ability to keep generating solid dividends even as it raises new money is a welcome sign. The company declared a $0.60 payout for the third quarter and offers a yield of 14.4% at current prices.

The other big concern for mortgage REIT investors is the interest rate spread -- the difference between what it costs the REIT to borrow and the rate it receives on its investments. Last week we saw the spread at peer American Capital Agency (Nasdaq: AGNC  ) slip year over year, and Annaly followed suit.


Interest Rate Spread Q3 2011

Interest Rate Spread Q2 2011

Interest Rate Spread Q2 2010

Annaly 2.08% 2.45% 2.11%
American Capital Agency 2.14% 2