Nobody really knows what to think of Annaly Capital (NYSE:NLY) right now.  

It's in the business of leveraged mortgage investing (bad). It's held hostage by the vicissitudes of interest-rate swings (really bad), and it relies on Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE) to stay alive (really, really bad).

Nevertheless, Annaly is still doing about as well as it's done in a while. In fact, earnings are way, way higher than they were last year, before all this chaos erupted. Is this mistaken identity? A once-in-a-lifetime anomaly? Nope. Just management doing its job.

Just the facts, ma'am
In the second quarter, Annaly pulled in $308 million in net income, or $0.60 per share -- double the amount earned in the same period last year, when it logged net income of $85.7 million, or $0.30 per share.  

Common dividends -- the bulk of what drives Annaly's returns -- were $0.55 per share, more than double the $0.24 per share paid in the same period last year. Annualize it out, and Annaly's current dividend yield is approaching a ridiculous 15%.

How on earth did it do that?
The company's strategy for making so much money isn't rocket science. It raises money through debt and equity financing, uses that cash to purchase Fannie- and Freddie-guaranteed securities, and pockets the difference between the cost and income of the investments. Since it sticks with guaranteed securities, its investments are highly liquid, and default risk is of little concern.

But since investors right now could give a hoot about whatever implicit or explicit guarantee Fred and Fran provide, dislocation in this market has been intense. Throw in a Federal Reserve interest-rate-cutting campaign, and annualized interest spreads -- the difference between interest income and interest expense -- have skyrocketed from 0.60% at the end of the second quarter of 2007 to 1.99% today. Juicier spreads mean juicer net income and dividends, explaining why Annaly is getting a boost.

It's the real deal
Annaly is a baby thrown out with the bathwater. Nobody wants to own anything attached to leveraged mortgage companies -- most of the time for good reason. The real estate market is undoubtedly disheveled, but that alone doesn’t mean everyone will end up getting slaughtered. Just like Wells Fargo (NYSE:WFC), companies that refused to dive into esoteric mortgage products and stuck to conservative practices are still doing quite well. Sure, Annaly's enormous dividend might get pared back a bit, and spreads will undoubtedly narrow as time goes on. But with the stock priced where it is, there's enough room for error to leave investors happy for some time to come.

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Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. Annaly Capital is a Motley Fool Income Investor recommendation. The Fool has a disclosure policy.