Annaly Capital Management (NYSE: NLY) is one of the largest REITs in the United States, ranking 910th on the Fortune 500. With its main office located in New York City, the company borrows money through short-term repurchase agreements and reinvests the proceeds in asset-backed securities. As of December 31, 2019, 93% of their investment portfolio was covered by mortgage-backed securities (MBS). The company seeks to generate its profits from the net interest spread between the interest earned from its assets and its borrowing costs.
2020 Financial Reports - As this company relies on the leverage obtained from the spread of net interest, it is crucial to study the company’s financial reports to detect flaws and strengths for possible buy/sell opportunities. Revenues from 2020 suggest a positive $1.22B with a net income of ($891.16M). Although this may seem problematic at first, diving into quarterly reports suggests they were heavily impacted by the first quarter where the pandemic first made its appearance, with a revenue loss of $3B and a net income of $3.64B. Throughout the rest of the year, this stock has been steadily growing back to its previous form, where this past quarter they’ve managed to obtain $2.05B in revenue alongside $1.75B in net income.
Current - As of June 14, 2021, the NLY stock traded on NYSE opened at the price of $9.42. With a 52-wk high of $9.64 and a 52-wk low of $6.26, this statistic complements the 13.55% rise in stock price over the past year. Another attractive feature to consider in regards to this stock is its dividend yield, which sits at 9.42%. With a REIT industry average of 4.3%, this company can distribute a high payout to its shareholders by strategically passing as an entity that avoids corporate-level taxes.
Future - Shares of the REIT had gained 5.78% over the past month, outpacing the Finance sector’s gain of 1.63% and the S&P 500’s gain of 1.06% in that time. According to Zack Consensus Estimates, the projected net sales are expected to continue growing by 4.31% from a year-ago period. Many analysts expect this stock to continue its steady growth.
Although the quantitative analysis seems very promising, there are many risks involved with this stock and the company structure.
Company Structure/Risk: According to their 2020 Financial report, 87% of their liabilities on their balance sheet stemmed from repurchase agreements. Although this is part of their business model, it can be very risky. One additional factor to consider is how they obtain their financing. Most REITs use their portfolio of loans as collateral for debt, which is used to buy additional mortgage securities. Although this business model can boost returns, it makes this investment fairly risky. If the portfolio value were to decline, Annaly would have to liquidate its investments. Although this is seldom, the impact can be very shocking and impactful to its investors.
Dividends: Another reason why you may be curious about this stock is its high-yielding dividend. Over the company’s history, this measure has stayed within the 10-15% range. Although this sounds promising, it is important to note that the quarterly dividend has been as low as $0.1/share to $0.8/share. This is mainly due to its direct correlation with the stock price. Annaly’s main attraction is the dividends. If the yield is low, the stock tends to drop significantly and vice versa. Investors must pay attention to the dividend announcement and plan accordingly.
Overall, Annaly Capital Management is run fairly well. With an appropriate upper management operation style alongside their business model, this stock shows strong promise. As mentioned above, dividends are usually what attracts customers to this stock and that key metric is what most investors should focus on when making their next investment.
With the 2021 1st quarter reports, this company is a “buy” for investors. Recently they’ve announced their second quarter’s dividend amount of $0.22 per share which equates to 9.37%. Although this is just below their normal operating band of 10-15%, this company has shown that it is still recovering from the 1st quarter of 2020 hysteria. Its recent growth over the past year suggests huge growth potential. With huge concerns with the US inflation and pandemic recovery, this stock is a very attractive buy, with dividends to balance some possible risks.