As a stock market investor, there are three reasons a stock may interest you. You may want the stock for its positive future outlook. A stock that’s also trading below its fair value could also entice you with its value. You may also want the stock for the security of its consistent dividends. And depending on who’s looking at the stock, Annaly Capital Management (NYSE: NLY) may tick two of those three boxes.
Source: Jessica Bryant
As a mortgage real estate investment trust (mREIT), Annaly borrows from lenders at the lowest possible rates and purchases mortgage-backed securities (MBS) that have higher yields than the interest rates from the lender. This interest margin is how it makes its profit. So, the lower the interest rate, the more Annaly makes.
A concern that immediately comes to mind is that the Fed is planning to hike interest rates, potentially denting the profits of Annaly. But Annaly has been around for a quarter of a century and has survived many various interest rate hikes in the past. One of the strategies used in the past was diversification into other credit and capital structures.
Perhaps what best attracts investors to Annaly is its high dividend yield of 11.19%. Although this yield has gone from as low as 9.25% to 11.59% in the past year and may return to sub-10% once the interest rate hikes begin, we expect the figures to still look fair.
That’s the dividend case for Annaly. The stock also makes a fair value case as it has a price-to-earnings ratio of 4.1 in a US mortgage REITs industry average of 9.3 and a US market average of 16.3.
Technical Analysis
NLY stock is worth $7.87 as we write this, right above the $6.1 – $7.1 support level which is also its lowest support level ever.
With where it is at the moment, NLY is perhaps one of the biggest darlings of value investors in addition to being the best friends of income investors. From this point, it is about 50% from the closest resistance level at $11.6 – $12.4.
The price once dipped below the $6.1 – $7.1 support level, but that proved to be a false breakout. Beyond that, the level has looked to hold steady. If the stock does break below the support level again, and for real, there’ll be no way to tell where the stock may find support from its price history.
By the way, if you’re an income investor who seeks another REIT to keep, here’s one for you.
