While shares of Annaly Capital
In a phrase, more of the same. But that doesn't mean that Annaly, now yielding more than 14%, shouldn't still be able to pump out those luscious dividends.
Interest rates will continue to remain near zero, meaning that mortgage REITs such as Annaly, Chimera
Last year, REITs raised a record amount of capital. Fresh capital raises totaled $37.5 billion, an increase of 32% from the year before and the largest amount of money since the industry was established some half-century ago. Annaly, American Capital, Armour Residential
So with a generally favorable environment, I would not be surprised to see more capital raises from such mortgage REITs and Annaly, which raised its own share count from 804 million in December 2010 to 970 million as of September. It may not be as impressive as 2011, though.
Other changes in the regulatory climate could affect mortage REITs, too. Shares of such REITs were hurt early last week, as some analysts speculated that the Obama administration could introduce a mass refinancing program that is much more extensive than the current HARP program. Such a program could hurt prices of mortgage-backed securities owned by the above REITs.
However, one administration official countered the assertion that a refinance program was in the offing. And given the administration's lame attempts to help borrowers thus far, I'm hard-pressed to believe that anything truly substantive will be done, meaning mortgage REITs might suffer from investors' worries of disruption more so than from any actual fundamental change. But it's an election year, so who knows for sure? Still, color me skeptical (and cynical, too).
So I think the situation looks good for Annaly and other mortgage REITs for 2012. While the economy ever-so-slowly improves, it's still dismal enough that low rates should continue. And that means good things for Annaly and its high yield. But when we get an inkling that rates could rise, investors should be careful, since that 14% yield cannot last forever.
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Jim Royal, Ph.D., owns shares of Annaly Capital Management. The Motley Fool owns shares of Annaly Capital Management and Chimera Investment. Motley Fool newsletter services have recommended buying shares of Annaly Capital Management. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.