Leveraged mortgage-backed securities -- four words associated with the financial crisis, housing crash, and the recession. Unless you're an investor in Annaly Capital Management (NYSE: NLY). Then those four words mean a big, fat dividend payout every quarter.

A SWOT analysis -- a look at strengths, weaknesses, opportunities, and threats -- will help assess whether Annaly's outsized dividends can continue or if investors should be lowering expectations a bit.

Strengths:

  • Nearly 16% dividend yield.
  • By limiting investments to U.S. government-backed debt, Annaly nearly eliminates credit risk.

Weaknesses:

  • Annaly's interest rate spreads have been shrinking since the end of 2009. If that trend continues, the dividend isn't sustainable at current levels.
  • REIT dividend payouts are required to be at least 90% of taxable income. As a result, the dividend stream can be somewhat unpredictable, and the company doesn't have the ability to retain earnings for growth.
  • Leverage doesn't provide much cushion for errors or unfavorable markets.

Opportunities:

Short-term rates near zero set up a near-perfect business environment for Annaly and other mortgage REITs. The Motley Fool's stock screener lists 18 stocks with dividend yields higher than 15%. One-third of them focus on real estate debt, including the five listed below.

Company

Dividend Yield (TTM)

Payout Ratio

American Capital Agency (Nasdaq: AGNC)

19.9%

108%

Resource Capital Corporation (NYSE: RSO)

16.9%

81%

Chimera Investment (NYSE: CIM)

16.2%

88%

Annaly Capital Management

15.8%

146%

Hatteras Financial (NYSE: HTS)

15.8%

121%

Source: Yahoo! Finance. TTM = trailing 12 months.

Threats:

  • A rise in short-term rates would increase borrowing costs and squeeze margins.
  • Sudden moves in mortgage rates could reduce the interest spread. With falling rates, high-yielding mortgages get refinanced pulling that income stream. With rising rates, the market value of existing paper falls, creating unrealized losses and reducing the collateral value available for Annaly's repurchase agreement financing.
  • At some point, the administration or Congress will focus on reforms for the mortgage industry. New regulations or changes to guarantee policies could fundamentally change Annaly's business model.

As long as short-term rates hold at rock bottom and the U.S. government keeps backing its agencies Fannie Mae and Freddie Mac, Annaly may as well have a license to print money. However, investors shouldn't count on a 16% yield continuing. The high payout ratio and declining interest rate spread are warnings that the yields that Annaly and some of its peers churn out are likely to pull back from monster to just high.

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Fool contributor Russ Krull owns stock in Hatteras Financial, but no other companies mentioned. The Fool has a disclosure policy that pays big dividends.