Should You Buy Annaly Stock for Its Staggering 14.34% Dividend Yield?

Annaly Capital Management, Inc. NLY has a record of paying monthly dividends, currently yielding a staggering 14.34% compared with the industry’s 12.2%. It currently sits at a payout ratio of 101%.

Annaly Capital Management Inc Dividend Yield (TTM)

Annaly Capital Management Inc dividend-yield-ttm | Annaly Capital Management Inc Quote

Generally, such a high dividend yield screams that the company might reduce dividends. However, that is not the case with this mortgage REIT's payout. Instead, Annaly recently hiked its dividend for the first time in the past five years.

In March 2025, Annaly announced a cash dividend of 70 cents per share for the first quarter of 2025, marking a 7.7% hike from the prior payout. This move reflects confidence in NLY’s cash flow and growth prospects.

Annaly’s peer AGNC Investment AGNC and Arbor Realty Trust ABR also pay quarterly dividends. AGNC Investment has a dividend yield of 16.07%, whereas Arbor Realty Trust has a dividend yield of 15.93%.

Coming back to Annaly, the company is focused on improving its liquidity and reducing leverage to support capital distribution activities. Till the end of the first quarter of 2025, the company had $7.5 billion of total assets available for financing, including cash and unencumbered Agency MBS of $4.7 billion, which can readily provide liquidity in times of adverse market conditions. This provides a substantial competitive edge in today's market. 

On Dec. 31, 2024, the company’s board of directors authorized a common share repurchase program, which will expire on Dec. 31, 2029. Under the program, the company may repurchase up to $1.5 billion of its outstanding shares of common stock. Though the company has not repurchased shares under this plan since it was announced, its solid liquidity position will support its capital distribution in the future.

Let us delve into other factors at play to know whether NLY is a solid option for income-seeking investors.

Annaly to Gain From Decline in Mortgage Rates

The Federal Reserve has lowered the interest rates by 100 basis points in 2024 and has kept rates steady since then. As such, mortgage rates are witnessing a slight decline. Per a Freddie Mac report, the average rate on a 30-year fixed-rate mortgage was 6.76% as of May 8, 2025, down from 7.09% in the same week a year ago. Also, mortgage rates stayed flat compared with the previous week.

Given the decline in mortgage rates, purchase originations and refinancing activities will likely improve in the upcoming period. With improving purchase originations and refinancing activities, 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 Annaly’s financials in the upcoming period.

NLY to Benefit From Portfolio Diversification

One of Annaly's main advantages is its well-diversified capital allocation approach. The company's investment portfolio includes residential credit, mortgage servicing rights (MSR), and agency mortgage-backed securities (MBS). This comprehensive strategy aims to lower volatility and sensitivity to interest rate changes while simultaneously generating appealing risk-adjusted returns. As of March 31, 2025, its investment portfolio aggregated $84.9 billion.

Annaly's diversified investment strategy will likely be a key contributor to long-term growth and stability. By diversifying its investments across the mortgage market, the company is better positioned to capitalize on opportunities as they occur in multiple areas, while limiting the risks associated with overexposure to any particular location.

In sync with this, NLY sold its Middle Market Lending portfolio in 2022 and exited its commercial real estate business. Through these, the company was able to enhance capabilities across its core housing finance strategy and allocate capital to residential credit businesses, the MSR platform and Agency MBS. Annaly is also 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.
The inclusion of MSRs in the portfolio is also notable because these assets tend to increase in value as interest rates rise, offsetting reductions in the value of agency MBS. These hedging impacts may produce more consistent returns over time and enable NLY to perform well in a scenario of interest rate change.

Annaly Price Performance & Valuation Analysis

Over the past year, Annaly’s shares have gained 10.2% against the industry’s decline of 0.2%. NLY has also outperformed its peers, AGNC Investment and Arbor Realty Trust, over the same time frame. AGNC has grown 5%, while ABR has fallen 14.5%.

Price Performance

From a valuation standpoint, Annaly appears inexpensive relative to the industry. The company is currently trading at a premium with a forward 12-month price-to-tangible book (P/TB) TTM multiple of 1.00X, lower than the industry average of 0.91X. Annaly peer AGNC Investment and Arbor Realty Trust forward 12-month price-to-tangible book of 1.05X and 0.93X, respectively.

Price-to-Tangible Book TTM

Should You Buy NLY Stock Now?

A strong liquidity position allows the company to maintain its dividend policy and take advantage of market difficulties to acquire assets at attractive valuations. Also, its diversified investment strategy can be a key contributor to long-term growth and stability, supporting its financials.

Sales Estimates

Earnings Estimates

However, the macro environment remains uncertain with elevated volatility, which may adversely impact NLY’s performance. Also, interest rate volatility and widening agency MBS spreads present challenges for the company's portfolio.

Considering the pros and cons of NLY, we may conclude that investors should refrain from rushing to buy the stock right now. Instead of just banking on its lucrative dividend yield, they should analyze market volatility closely for a more appropriate entry point. Its premium valuation also warrants caution.

The stock currently carries a Zacks Rank #3 (Hold). 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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