Annaly vs. Arbor Realty: Which mREIT Stock Has Better Upside?

Both Annaly Capital Management NLY and Arbor Realty Trust ABR are mortgage real estate investment trusts (mREITs) offering high dividend yields and operating in the leveraged mortgage-backed securities space. Yet they differ significantly in risk profiles, dividend sustainability, and growth trajectory.

Let us delve deeper and analyze various factors at play to decide which offers better upside.

The Case for Annaly

Annaly is focused on improving its liquidity and reducing leverage to support capital distribution activities. Till the end of the second quarter of 2025, the company had $7.4 billion of total assets available for financing, including cash and unencumbered Agency mortgage-backed securities (MBS) of $4.7 billion, which can readily provide liquidity in times of adverse market conditions. 

NLY has a record of paying out monthly dividends, currently yielding a staggering 13.3%. It currently sits at a payout ratio of 99%. The company has increased its dividend once in the past five years. 

Annaly's investment strategy is driven by the prudent selection of assets and effective capital allocation to achieve stable returns. The strategy includes traditional Agency MBSs, which provide downside protection and investments in more non-agency and credit-focused asset classes that enhance returns. Also, a scaled mortgage servicing rights (MSR) platform will continue to benefit from a low prepayment environment.

The company is focusing on improving its capabilities by acquiring newly originated MSRs from its partner network, which will continue to provide a strong advantage in expanding its MSR business. As of March 31, 2025, its investment portfolio aggregated $89.5 billion.

As the mortgage rates come down from historical highs, purchase originations and refinancing activities will likely improve. Hence, NLY will likely witness book value improvement in the coming period as spreads in the Agency market tighten, driving asset prices. This should also boost net interest spread, improving the portfolio's overall yield. This is expected to support the company’s financials in the upcoming period.

The Case for Arbor Realty

Arbor Realty primarily focuses on originating and servicing loans for multi-family, single-family, and other commercial real estate assets. Housing affordability challenges are declining as mortgage rates are relatively lower. With this, mortgage originations are witnessing an improvement. This will lower operational and financial challenges for Arbor Realty, and increase the gain on sale margin and new investment activity.

Like NLY, the company has a record of paying out quarterly dividends. ABR’s current dividend yield is 10.15%, with a payout ratio of 92%. In May 2025, the company reduced its dividend by 30.3% to 30 cents per share.  

ABR’s weak liquidity position is concerning. As of June 30, 2025, the company had cash and cash equivalents of $504 million, while it had a long-term debt of $5.1 billion. Hence, given a weak liquidity profile, its capital distribution seems unsustainable.

NLY & ABR: Price Performance & Valuation Analysis

So far this year, NLY shares have risen 23.4%, while ABR has lost 6.6% compared with the industry’s growth of 11.3%. 

Price Performance

In terms of valuation, Annaly is currently trading at a 12-month forward price-to-earnings (P/E) of 7.14X, lower than its five-year median of 7.22X. Arbor Realty, conversely, is currently trading at a 12-month forward P/E of 9.78X, which is higher than its five-year median of 8.76X.

Price-to-Earnings F12M

NLY is trading at a discount compared with the industry average of 8.26X, while ABR is trading at a premium. As such, NLY is inexpensive compared with ABR.

How Do Estimates Compare for Annaly & Arbor Realty?

The Zacks Consensus Estimate for NLY’s 2025 and 2026 sales implies year-over-year increases of 463.4% and 29.2%, respectively. Likewise, the consensus estimate for 2025 and 2026 earnings indicates 7% and 2.5% rallies, respectively. Its EPS estimates for 2025 and 2026 have moved upward over the past 60 days.

Earnings Estimates

The Zacks Consensus Estimate for ABR’s 2025 and 2026 sales suggests year-over-year declines of 17.6% and 0.4%. The consensus estimate for 2025 earnings indicates a drop of 36.8%, while it implies a rise of 15% for 2026. Its EPS estimates for 2025 and 2026 have moved downward over the past 60 days.

Earnings Estimates

NLY or ABR: Which Has Better Upside?

Between Annaly and Arbor Realty, NLY clearly emerges as a better pick. Its robust liquidity, more sustainable dividend (even with a high yield), improving financial outlook, and attractive valuation make it a smarter choice for income-focused investors.

On the contrary, ABR’s weak liquidity, a dividend cut, and premium valuation make it a riskier bet with less upside potential.

Annaly currently carries a Zacks Rank #3 (Hold), while Arbor Realty has a Zacks Rank of 5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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