Opinions
Paul Gardner, CFA
Annaly Capital Management Inc.
NLY-N
COMMENT
Jan 20, 2015
Stock price when the opinion was issued
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Mortgage REITs. These tend to attract a lot of investors. The yield is very high, between 12% and 15%. They use debt to lend it as mortgages. The stock has been in decline. Why get a high yield vehicle when you are going to lose it all on capital? It is better to focus on high quality real estate.
A mortgage REIT. They leverage the slope of the yield curve, to invest in mortgages. Rising rates are not necessarily a good thing for them. It really all revolves around their ability to leverage the spread in the yield curve. There is also some reinvestment risk. If existing pools of mortgages are maturing at higher rates than what you can invest in, that impairs profitability.
It is a mortgage REIT making money by borrowing on the short end of the curve and lending on the long end. The portfolio is much larger than the capital they have to play with, so there is volatility. If rates go up next year it creates refinancing risk for them. He is not comfortable with the leverage in the portfolio.
Dividend dropped 12%? He has not looked at this one for a few years. It is a rolling of US mortgages and real estate instruments and comes with a high yield. He has never found these types of products to make money for investors. You may not want this long term -- perhaps for a short term trade.
Founded in 1997 as a real estate investment trust (reit), annaly is a leading mortgage reit listed on the new york stock exchange (nyse: nly). annaly's principal business objective is to generate net income for distribution to shareholders through the prudent selection and management of our investments. since inception, annaly has paid over $13 billion in dividends to shareholders. Social media mentions are up 300% in the past 24h.
A mortgage-backed securities lender in the US. Highly levered. They lend and then get free funding from the Fed and distribute out 100% of their earnings. Because you are getting 13%-14%, all you want it to do is just stay stable. If you think the Fed is going to raise rates, it generally hurts them. On the opposite side, they have the underlying security of US housing improving every day. 2 out of 3 years you will make 14%-15%, but you could be down 20% in one year. You have to be very careful. This probably would not be the greatest timing to get in.