Rising interest rates have hammered the real estate market. They've weighed on asset values while making it more expensive to borrow money. That has put a lot of pressure on the sector.

While Annaly Capital Management (NLY -0.32%) hasn't been immune to the industry's issues, the mortgage real estate investment trust (REIT) has fared a bit better than feared. Meanwhile, with the current interest-rate hiking cycle likely nearing an end, it sees better days ahead. That begs the question of whether now might be a good time to buy the stock for its eye-popping 13.6%-yielding dividend.

Navigating the volatility reasonably well

Annaly reported $0.81 per share of earnings available for distribution in the first quarter. That was down from $1.11 per share in the year-ago quarter and from $0.89 per share in the fourth quarter. However, it was a lot better than expected, considering the analysts' consensus estimate was $0.75 per share.

Meanwhile, despite the impact of rising interest rates on asset values, Annaly's book value held relatively steady, ending the quarter at $20.77 per share. It also earned an economic return of 3% in the quarter. While that's down from 8.7% in the fourth quarter, it was still positive, despite all the market turmoil.

In commenting on the quarter, CEO David Finkelstein stated:

Despite significant volatility in interest rates and mortgage spreads throughout the first quarter, Annaly was able to proactively navigate this challenging environment with book value effectively unchanged, generating an economic return of 3%. As we noted at the start of the year, Annaly was prepared for market turmoil with prudent leverage, substantial liquidity and optimal asset allocation. This conservative positioning enabled us to preserve capital and liquidity during the quarter, while maintaining the flexibility to grow when opportunistic.

Annaly put itself in an excellent position to weather the challenging market conditions of the first quarter by entering the period with a strong financial position. It started 2023 with an economy leverage ratio of 6.3 times, which ticked up to 6.4 times by the end of the first quarter. That's down from a recent peak of 7.1 times at the end of the third quarter.

It allowed the company to take advantage of some opportunities during the quarter. It grew its portfolio of government agency-backed residential mortgages by 7% to $77.6 billion. Annaly has been locking in higher yields, as 56% of those mortgages have rates above 4.5%, up from 51% at the end of last year.

The outlook for Annaly and its dividend

Annaly believes it's in a strong position for whatever happens next in the market. The CEO stated:

Looking ahead, we are encouraged by the robust returns available across our three investment strategies and believe we are well-positioned to take advantage of opportunities as they arise. With volatility likely to further decrease as the Federal Reserve moves closer to the end of its hiking cycle, we are confident in our outlook though prepared for any additional market turbulence.

As the CEO noted, Annaly believes that better days lie ahead. It expects to see even more opportunities to invest capital into attractive mortgage investments, especially as the Fed finishes its current interest-rate hiking cycle. However, it also has the financial strength to withstand more volatility, if that's the case.

This outlook bodes well for the company's dividend, which it reset to a $0.65 per share quarterly rate earlier this year. Since earnings available for distribution came in stronger than expected at $0.81 per share in the first quarter, it easily covered that reset rate. Meanwhile, with market conditions appearing poised to stabilize, the payout looks to be on a firming footing.

Time to buy?

While Annaly delivered better-than-expected first-quarter results, the mortgage REIT is still facing some headwinds and a lot of economic uncertainty. Because of that, risks remain that the company could eventually cut its dividend again, something it has done several times over the past decade.

Despite its alluring dividend yield, Annaly doesn't look like a compelling investment opportunity right now. The company needs to show it can grow its earnings and reverse the downward trend in its dividend before it would be worth buying.