Tag Archives: Annaly Capital

Business, Finance, Occupation & Industry

The Dangerous Game Big Investors Are Playing

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By Dan Caplinger, The Motley Fool

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Pension funds and other institutional investors have struggled to produce the returns they need to satisfy their obligations. To boost returns, they’ve turned to a new, risky strategy involving leverage that could eventually backfire, leaving pension funds facing shortfalls in meeting their obligations to pensioners.

In the following video, Fool markets analyst Mike Klesta talks with longtime Fool contributor and financial planner Dan Caplinger about this strategy and what it means to you and your money.

Annaly Capital has used a similarly leveraged strategy to produce huge dividends, but can investors count on that payout sticking around? With the Federal Reserve‘s recent moves, Annaly has had to scramble to defend its bottom line. In The Motley Fool’s premium research report on Annaly, senior analysts Ilan Moscovitz and Matt Koppenheffer uncover the key challenges the company faces and divulge three reasons investors may consider buying it. Simply click here now to claim your copy today!

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Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

This Mortgage REIT Will Soon Dwarf Annaly

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By Amanda Alix, The Motley Fool

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When it comes to double-digit returns, it’s hard to beat the mortgage REIT sector, particularly since Federal Reserve actions since the financial crisis have kept short-term interest rates at historic lows. The shining example of this type of real estate investment trust is Annaly Capital , the original investor in mortgage-backed securities insured by government sponsored entities such as Fannie Mae and Freddie Mac.

Annaly has built its reputation on stellar yields produced by a savvy management team, building the business from its inception in 1997 to a company with a market capitalization of $15 billion and assets topping $133 billion. But there’s a relative newcomer that seems intent on knocking Annaly off of its throne: American Capital Agency .

A great year for mortgage REITs
American Capital Agency went public in 2008, a year that saw other mREITs such as Hatteras Financial , and Armour Residential  enter the territory as well. Groundbreaker Annaly had shown that the carry trade could be lucrative, and the ultra-low short-term interest rate environment created a perfect climate for new companies to enter the playing field.

Both Hatteras and Armour have been successful, but American Capital Agency, under the guidance of Gary Kain, has seen explosive growth in its short life. While Hatteras’ market cap sits at less than $3 billion and Armour’s is under $2.5 billion, American Capital Agency sports a $13 billion capitalization. Annaly’s current market cap is $15 billion, showing that American Capital is hot on its heels and could overtake the venerable mREIT in short order.

Too big, too fast?
American Capital Agency has accrued nearly as much in assets as Annaly, too. At the end of 2012, the trusts held approximately $100.5 billion, and $133.5 billion, consecutively, and it looks like Annaly may lose its premier spot sooner rather than later: American Capital Agency held a mere $58 billion in assets at the end of 2011, meaning that it nearly doubled its asset base in one year’s time. How did it accomplish this?

Most of the credit for the trust’s growth and success belongs to Kain, a shrewd manager who cut his teeth overseeing billions of dollars in assets at Freddie Mac. When Kain took over the reins at American Capital Agency in 2009, the company had only $2 billion in assets. Kain began building it up to its current robust level by taking advantage of lucrative financing opportunities, and using the insights gained at his former employment to reinvest in and grow the company.

Certainly, the exponential growth experienced by American Capital Agency is unusual, but there seems to be no cause for alarm. The trust still pays out a hefty $1.25 quarterly dividend, even as it approaches the girth of Annaly — something that other mREITs must envy. As American Capital Agency continues its inexorable rise, its investors are no doubt happy to go along for the ride.

There’s no question Annaly Capital‘s double-digit dividend is eye-catching. But …read more

Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Is This the Fed Policy Annaly Needs?

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By Matt Koppenheffer and David Hanson, The Motley Fool

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In the following video, Motley Fool financials analysts Matt Koppenheffer and David Hanson take a look at a speech given by the Fed’s Janet Yellen, in which she discusses the Fed’s plan to be highly communicative and transparent about how much longer its accomodative quantitative easing policy is going to continue. Matt and David tell us that this can only mean good things both for mortgage REITs like Annaly Capital  and American Capital Agency , and for investors in these companies, as it will leave everyone better informed about what the Fed is up to and when interest rates are going back up, without needing to rely on rumor or prognostication. 

There’s no question Annaly Capital‘s double-digit dividend is eye-catching. But can investors count on that payout sticking around? With the Federal Reserve keeping interest rates at historically low levels, Annaly has had to scramble to defend its bottom line. In The Motley Fool‘s premium research report on Annaly, senior analysts Ilan Moscovitz and Matt Koppenheffer uncover the key challenges the company faces and divulge three reasons investors may consider buying it. Simply click here now to claim your copy today!

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Source: FULL ARTICLE at DailyFinance

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1 Reason to Avoid Annaly Capital Management

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By John Maxfield, The Motley Fool

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Annaly Capital Management is one of the most popular mortgage REITs in the country. It pays a double-digit dividend yield and invests only in mortgage-backed securities that are issued or insured by Fannie Mae or Freddie Mac. The net result is that, aside from interest rate risk, investors in Annaly can have their cake and eat it, too, receiving large quarterly checks in the mail without having to worry about credit risk. What’s not to like?

In the video below, Motley Fool contributor John Maxfield discusses why, despite these things, investors should be wary of this stock.

There’s no question Annaly Capital‘s dividend is eye-catching. But can investors count on that payout sticking around? With the Federal Reserve keeping interest rates at historically low levels, Annaly has had to scramble to defend its bottom line. In The Motley Fool‘s premium research report on Annaly, senior analysts Ilan Moscovitz and Matt Koppenheffer uncover the key challenges the company faces and divulge three reasons investors may consider buying it. Simply click here now to claim your copy today!

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Source: FULL ARTICLE at DailyFinance

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Annaly Capital: There's More to Its Management Proposal Than Meets the Eye

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By John Maxfield, The Motley Fool

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At its upcoming shareholders meeting, Annaly Capital Management is asking its investors to approve a measure that outsources its management to a company owned by Annaly’s current executives. To address any concern that the structure would create a misalignment of shareholder and management interests, Annaly has proposed requiring that its five most senior executive officers own an amount of stock equal to at least 6 times their 2012 base salary, which represents an aggregate ownership of $38.7 million.

In the video below, Motley Fool contributor John Maxfield discusses why there may be more to this story than meets the eye.

There’s no question Annaly Capital‘s double-digit dividend is eye-catching. But can investors count on that payout sticking around? With the Federal Reserve keeping interest rates at historically low levels, Annaly has had to scramble to defend its bottom line. In The Motley Fool‘s premium research report on Annaly, senior analysts Ilan Moscovitz and Matt Koppenheffer uncover the key challenges the company faces and divulge three reasons investors may consider buying it. Simply click here now to claim your copy today!

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Source: FULL ARTICLE at DailyFinance

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Is This the Next $100 Billion Financial Meltdown?

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By Matt Koppenheffer and David Hanson, The Motley Fool

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At the end of 2009, mortgage REIT American Capital Agency had around $5 billion in assets. Just three years later, at the end of 2012, that number has grown to approximately $100 billion. Is this insane growth sustainable, or is the bubble going to pop? In this video, Motley Fool financial analysts Matt Koppenheffer and David Hanson compare American Capital to some of the other big mortgage REITs and their growth over the same period, such as Annaly Capital , and take a look at American Capital‘s track record, to tell us whether the company inspires confidence or trepidation.

There’s no question Annaly Capital‘s double-digit dividend is eye-catching. But can investors count on seeing that payout stick around? With the Federal Reserve keeping interest rates at historically low levels, Annaly has had to scramble to defend its bottom line. In The Motley Fool‘s premium research report on Annaly, senior analyst Ilan Moscovitz joins Matt to uncover the key challenges the company faces and divulge three reasons investors may consider buying it. Simply click here now to claim your copy today!

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Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Why Annaly Investors Should Be Wary

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By Matt Koppenheffer and David Hanson, The Motley Fool

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Many investors are going to be watching the Fed closely this year as it becomes increasingly more likely that the historically low interest rates we’ve seen recently may come to an end as early as before the end of 2013. What does that mean for investors in mortgage REITs such as Annaly Capital ?

In this video, Fool financial analysts Matt Koppenheffer and David Hanson tell investors why they should be watching this story closely, as it may impact their portfolio — and their dividend income — in a big way. 

There’s no question Annaly Capital‘s double-digit dividend is eye-catching. But can investors count on that payout sticking around? With the Federal Reserve keeping interest rates at historically low levels, Annaly has had to scramble to defend its bottom line. In The Motley Fool’s premium research report on Annaly, senior analysts Ilan Moscovitz and Matt Koppenheffer uncover the key challenges the company faces and divulge three reasons investors may consider buying it. Simply click here now to claim your copy today!

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Source: FULL ARTICLE at DailyFinance

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Should Annaly's Investors Support This Proposal?

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By John Maxfield, The Motley Fool

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The popular high-yielding mortgage REIT Annaly Capital Management recently filed a proxy statement revealing the issues to be voted on at the company’s upcoming shareholders’ meeting this May. In addition to the typical proposals concerning the election of directors and executive compensation, Annaly is asking shareholders to approve a change in the structure of its management. In the video below, Motley Fool contributor John Maxfield discusses whether this is a move Annaly’s shareholders should support.

Want to learn more about Annaly Capital Management?

There’s no question Annaly Capital‘s double-digit dividend is eye-catching. But
can investors count on that payout sticking around
? With the Federal Reserve keeping interest rates at historically low levels, Annaly has had to scramble to defend its bottom line. In The Motley Fool‘s premium research report on Annaly, senior analysts Ilan Moscovitz and Matt Koppenheffer uncover the key challenges the company faces and divulge three reasons investors may consider buying it. Simply
click here now
to claim your copy today!

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Source: FULL ARTICLE at DailyFinance

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Will Regulators Squelch Mortgage REITs' Juicy Yields?

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By Amanda Alix, The Motley Fool

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For yield-starved investors, the plethora of mortgage REITs going public over the past few years has been a godsend. As fans of the sector well know, the requirement that these trusts share 90% of their profits with investors usually results in yields in the double digits. Even Annaly Capital , which has had to shrink its dividend because of the policies of the Federal Reserve, still sports a yield over 11%.

The mREIT explosion has drawn the attention of regulators, though, and talk of squelching these superlative returns by imposing limitations on the way these companies do business has begun to pick up, after several months of silence.

Expanding assets prompt concern
As mREITs rack up a larger asset base, some rule makers began to express concern that one or more failures in this sector could harm the mortgage industry — or, more troubling, the economy at large. In August 2011, the Securities and Exchange Commission announced it would be looking into regulating mREITs as if they were investment firms, much like mutual funds. This followed a tough time for these REITs, in which concerns regarding Europe caused selling that sent values plummeting.

Since then, things have been quieter on that front, but a recent Bloomberg article shows that regulators have recently restarted the debate. Of particular concern are the two largest mREITs, Annaly and American Capital Agency . Together, these two companies hold approximately $234,000 in assets — primarily government-insured mortgage-backed securities.

What’s the risk?
In addition to their exploding girth, some officials worry about the high leverage these trusts use to make money as well as their use of repurchase agreements, since this was the formula that helped cause the financial crisis. As entities that invest in real estate, mREITs have been exempt from certain rules. If mREITs are folded into the category of investment funds, however, they will fall under the auspices of the Investment Act of 1940 — effectively quashing their ability to use high leverage to produce their historic yields.

Will recent comments about mREIT risks from Fed Governor Jeremy Stein or Federal Reserve Bank of New York President William Dudley nudge the SEC to take action? Perhaps not. As some analysts point out, the industry is still tiny, holding less than 10% of all MBS products. In addition, most report lower leverage ratios today than they used in 2008.

Many commenters also note how important management is in this business, seeing little risk in the leadership of Annaly and American Capital Agency. One mREIT that seems to inspire less faith is Armour Residential . This company holds less than $21 million in assets, but it has seen its asset base skyrocket by nearly 30% year over year, and some question the ability of management to keep up.

Are the sector’s tasty yields soon to be a thing of the past? For mREIT investors, this may well be the most important issue facing the industry this year.

There’s no question Annaly …read more
Source: FULL ARTICLE at DailyFinance

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3 Reasons to Sell Annaly Capital

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By Amanda Alix, The Motley Fool

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Times are still tough for agency mortgage REITs such as Annaly Capital , but a healing economy, rising mortgage rates, and whispers regarding an eventual end to the Federal Reserve‘s quantitative easing program have spurred investors to send Annaly’s stock higher over the past week or so.

Is it time to buy in? There are a few headwinds here, some that are part and parcel of investing primarily in agency paper, and at least one that is of Annaly’s own making. Here are three issues that investors considering a stake in Annaly should take under advisement — and might very well cause current investors to think about selling.

Management shakeup seems dicey
This spring, Annaly management will ask its shareholders to vote on a new management setup, which will change the current method of management by insiders to one that is carried out by an external company. As management points out, this is not uncommon in the mREIT universe. However, there are a couple of things that stockholders should be aware of that make this idea look less enticing for investors.

One confusing aspect is the makeup of the new management entity — which will consist of Annaly’s current management. This seems a bit strange, to say the least, and here’s another thorny issue: Analysts note that, if the change goes through, management’s pay will no longer be disclosed. In the current climate of increased calls for transparency and stockholder say-on-pay, this aspect looks very fishy.

Dwindling dividends and a shrinking spread
Annaly is well known for paying out excellent dividends, but that hasn’t been the case for some time. Over the past two years, Annaly’s dividend has been on a downward spiral, with the most current quarterly payout sitting at $0.45. Compared to other agency players, like American Capital Agency , which has paid out its juicy $1.25 dividend for the past five quarters, and Capstead Mortgage which actually raised its payout by one penny for the first quarter of this year, Annaly looks like it is losing ground.

In addition, its spread — the source of most of its income — has shrunk to a measly 0.95%. Compare this to American Capital Agency’s 1.63% and Capstead’s 1.13%, and you can see why Annaly’s dividend is looking somewhat anemic.

The exit of Fannie and Freddie could hurt Annaly
An especially problematic issue is that of the government‘s winding down of government-sponsored entities Fannie Mae and Freddie Mac. Of course, the exit of the two GSEs that currently back the lion’s share of mortgage-backed securities might put all agency mREITs in peril. But Annaly, as the largest of all these players, would probably suffer the most, as investor concerns regarding the winding-down process impact the value of its current holdings — and, very possibly — make finding new investments with an acceptable risk level more difficult.

Should these issues cause investors to run from Annaly? …read more
Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Over or Under: 4 Quarters Until Annaly Raises Dividend?

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By David Hanson and Matt Koppenheffer, The Motley Fool

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With interest rates at historic lows, many yield-hungry investors have flocked to the mREIT sector for the robust dividends. Annaly Capital Management is one of the biggest players in the space and sports a staggering +11% annual dividend yield. However, as long-term rates on new agency mortgage-backed securities, Annaly’s primary focus, have come down, so has Annaly’s dividend. In this video, Fool financial analysts David Hanson and Matt Koppenheffer discuss whether Annaly shareholders can expect an increase soon, and if not, is that a reason to sell? 

There’s no question Annaly Capital‘s double-digit dividend is eye-catching. But can investors count on that payout sticking around? With the Federal Reserve keeping interest rates at historically low levels, Annaly has had to scramble to defend its bottom line. In The Motley Fool’s premium research report on Annaly, senior analysts Ilan Moscovitz and Matt Koppenheffer uncover the key challenges the company faces and divulge three reasons investors may consider buying it. Simply click here now to claim your copy today!

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Source: FULL ARTICLE at DailyFinance

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3 Ways Leverage Could Cause the Next Financial Meltdown

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By Dan Caplinger, The Motley Fool

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The ability to borrow money is one of the hallmarks of a successful financial system. But when too many people take advantage of the leverage available from borrowing, it can set the stage for dramatic financial collapses, wreaking havoc on the same financial system that made leverage possible in the first place.

Increased levels of leverage are showing up in several parts of the economy. Below, you’ll learn more about three key areas where leverage has become increasingly important, but first, let’s take a quick look at why this boom in borrowing is taking place.

Simple supply and demand
The financial system and its interplay between financial institutions and ordinary businesses and individuals can seem ridiculously complicated at times. But the financial system basically acts like a market in which money is a commodity, and supply-and-demand considerations govern money’s use as much as that of any other commodity.

So with the Federal Reserve and central banks around the world having promoted low interest rates for years, it’s no surprise that borrowers who can take advantage of low financing costs are taking advantage. Let’s take a look at some of the big players involved.

Money managers are betting bigger
One troubling trend comes from money managers, which are taking on more leveraged bets in an effort to increase returns. In an effort to squeeze more yield from fixed-income investments, managers are turning to collateralized-loan obligations, borrowing money at relatively low rates in order to invest in higher-rate risky debt. As long as that higher-risk debt doesn’t default, then the strategy locks in big profits for fund investors.

But what inevitably happens is that as positive returns entice more investors to copy the strategy, the quality of available debt degrades, raising the risk of default. Eventually, a debt default usually leads to a stampede for the exits, with asset values plunging as certain loans are exposed as toxic assets. At that point, undoing all the leverage becomes nearly impossible without massive disruptions to the financial system.

Mortgage REITs are still growing
Another area where leverage has led to big returns is in the mortgage REIT arena. Thanks to low borrowing rates, mortgage REITs have used mortgage-backed debt in much the same way that money managers are using other forms of loans, and balance sheets have soared in size. Industry leader Annaly Capital now sports $117 billion in liabilities compared to less than $60 billion three years ago. American Capital Agency has ramped up even more extensively, with its liabilities having risen nearly sevenfold in just two years.

Even more alarming is the pace at which newer entrants to the space have become huge players. ARMOUR Residential has gone from just $100 million in liabilities three years ago to more than $18.5 billion at the end of 2012. Invesco Mortgage Capital , meanwhile, has had liabilities jump 25 times since 2009 to more than $16 billion.

Most mortgage …read more
Source: FULL ARTICLE at DailyFinance

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3 Reasons to Buy Annaly Capital

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By Amanda Alix, The Motley Fool

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Despite the Federal Reserve’s QE3 program, mortgage REITs — particularly those that invest primarily in agency-only paper backed by Fannie and Freddie — have not imploded, though yields and dividends have suffered a bit.

But savvy investors know that the long-term view is most important, and that quantitative easing won’t be around forever. For mREITs, Annaly Capital is the granddaddy of them all, and its longevity presents many good reasons to consider it a buy — three of which I see as the most compelling.

1. Returns over the long term have been spectacular
Since its 1997 IPO, Annaly has been very good to its investors. The company notes that its total return  to stockholders is somewhere between 500% and 600%, compared with an approximate return from the S&P 500 of 85% during the same timeframe. Annaly has also shared dividends totaling $9 billion since then.

But, you wonder, what about now? While it’s true that Annaly has been trimming its dividend over the past year, the most recent payout stayed stable from the previous quarter. Other mREITs, such as Armour Residential and CYS Investments , have been forced to decrease dividends lately. Armour cut its payout by 12.5%, and CYS enforced a 25% trim on its dividend.

2. High prepayments may give Annaly an edge
There’s no doubt that Annaly’s constant prepayment rate is high: 19% as of the fourth quarter, compared to CYS’s 17.6%, and Armour’s lower-still 14.1%. However, this could be a blessing in disguise for Annaly, which could find itself with more cash on hand for newer securities, which will likely have a better spread if mortgage rates continue to rise. Extra cash will also come in handy for Annaly’s newest project, the purchase of CreXus Investments .

3. Annaly proves its flexibility
One of the most conservative mREITs in the business, Annaly has always trod the straight and narrow, never deviating from its agency-only mantra, even in lean times. Since the financial crisis, however, the unprecedented involvement of the Fed has prompted Annaly to branch out into uncharted waters through its purchase of CreXus Investment.

As CreXus is a buyer of commercial mortgage-backed securities, this new direction has made some analysts uneasy. While Annaly’s change of heart is not without risk, I think it shows that the company is willing to take a chance when it is truly necessary, and in small increments — thereby keeping the risk as low as possible. And that, after all, is what good management is all about.

There’s no question Annaly Capital’s double-digit dividend is eye-catching, even at its current, less robust rate. But can investors count on that payout sticking around? With the Federal Reserve keeping interest rates at historically low levels, Annaly has had to scramble to defend its bottom line. In The Motley Fool’s premium research report on Annaly, senior analysts Ilan Moscovitz and Matt Koppenheffer uncover the key challenges the company faces …read more
Source: FULL ARTICLE at DailyFinance

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Is This CEO Worth $25 Million?

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By David Hanson, The Motley Fool

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In the video below, Motley Fool financial analyst David Hanson tells investors about a busy week for financial statements this week and, in particular, takes a look at Annaly Capital‘s proxy statement, in which the company disclosed that the total payment for Annaly’s CEO Wellington Denahan for 2012 would be over $25 million. Is she really worth all that money to the company and its shareholders? David gives investors his take.

There’s no question that Annaly Capital‘s double-digit dividend is eye-catching. But can investors count on that payout sticking around? With the Federal Reserve keeping interest rates at historically low levels, Annaly has had to scramble to defend its bottom line. In The Motley Fool‘s premium research report on Annaly, senior analysts Ilan Moscovitz and Matt Koppenheffer uncover the key challenges the company faces, and divulge three reasons investors may consider buying it. Simply click here now to claim your copy today!

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Source: FULL ARTICLE at DailyFinance

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Has Chimera Become the Perfect Stock?

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By Dan Caplinger, The Motley Fool

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Every investor would love to stumble upon the perfect stock. But will you ever really find a stock that provides everything you could possibly want?

One thing’s for sure: You’ll never discover truly great investments unless you actively look for them. Let’s discuss the ideal qualities of a perfect stock, then decide if Chimera fits the bill.

The quest for perfection
Stocks that look great based on one factor may prove horrible elsewhere, making due diligence a crucial part of your investing research. The best stocks excel in many different areas, including these important factors:

  • Growth. Expanding businesses show healthy revenue growth. While past growth is no guarantee that revenue will keep rising, it’s certainly a better sign than a stagnant top line.
  • Margins. Higher sales mean nothing if a company can’t produce profits from them. Strong margins ensure that company can turn revenue into profit.
  • Balance sheet. At debt-laden companies, banks and bondholders compete with shareholders for management’s attention. Companies with strong balance sheets don’t have to worry about the distraction of debt.
  • Money-making opportunities. Return on equity helps measure how well a company is finding opportunities to turn its resources into profitable business endeavors.
  • Valuation. You can’t afford to pay too much for even the best companies. By using normalized figures, you can see how a stock‘s simple earnings multiple fits into a longer-term context.
  • Dividends. For tangible proof of profits, a check to shareholders every three months can’t be beat. Companies with solid dividends and strong commitments to increasing payouts treat shareholders well.

Why perfection has eluded Chimera
Unfortunately, because nearly all of Chimera’s financial information is woefully out of date, it’s impossible to evaluate the mortgage REIT on most of those factors. Just about the only thing we know for sure is that Chimera pays a dividend yield of 11.3% but has seen its quarterly payout shrink dramatically from its 2008 levels. That’s fairly consistent with what we saw from Chimera last year. Moreover, the share price has gone up by 6%, which, in addition to the dividend that investors have pocketed over the interim, adds up to a healthy total return.

The main problem in evaluating Chimera is that it’s more than a year behind in filing its required reports with the SEC. The company just managed to file its 2011 annual report earlier this month, reporting a GAAP book value of $2.97 per share. Since then, the only thing Chimera has reported is an estimate of book value, which had risen to $3.42 per share as of the end of 2012.

Of course, it’s easy to use what’s happening with other mortgage REITs as a proxy for what’s going on behind the scene at Chimera. The Federal Reserve’s use of mortgage-backed securities as part of its quantitative easing program has made it tougher for Annaly Capital and ARMOUR Residential to get good deals on scarcer agency-backed loans, leading to share-price declines and dividend reductions. …read more
Source: FULL ARTICLE at DailyFinance

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Companies Dying to Pinpoint Interest Rate Changes

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By David Hanson and Matt Koppenheffer, The Motley Fool

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With Ben Bernanke’s term at the Fed to come to a close in Jan. 2014, there is a lot of speculation going on as to when QE3, the Fed’s quantitative easing policy, will come to an end and when interest rates will rise again. In this video, Motley Fool financials analysts David Hanson and Matt Koppenheffer debate whether interest rates will come back up earlier than planned (before the end of 2013) or wait until the end of Bernanke’s term. They also discuss who will be affected by those changing interest rates and what the effect will be on the recovering economy as a whole.

There’s no question Annaly Capital‘s double-digit dividend is eye-catching. But can investors count on that payout sticking around? With the Federal Reserve keeping interest rates at historically low levels, Annaly has had to scramble to defend its bottom line. In The Motley Fool‘s premium research report on Annaly, senior analysts Ilan Moscovitz and Matt Koppenheffer uncover the key challenges the company faces and divulge three reasons investors may consider buying it. Simply click here now to claim your copy today!

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Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Annaly Shareholders Have a Big Decision to Make

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By Amanda Alix, The Motley Fool

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A recent filing with the Securities and Exchange Commission reveals some interesting plans for the Annaly Capital shareholders’ meeting. It seems that the well-established mortgage REIT wants to significantly change its management structure — and it will ask its shareholders at the company’s annual meeting this May to approve this modification.

A drastic change
Since going public in 1997, Annaly has been internally managed by its board of directors, which oversees its management team — most of whom are also on the board. A note on Annaly’s website from the late Michael Farrell, former CEO, states that the trust’s governance is geared toward transparency, which accounts for the company’s excellent performance.

Now, the mREIT wants to become externally managed, using a company called, quite appropriately, Annaly Management Company LLC. All managers and officers would become employees of the Manager, and the new regime would begin on July 1 of this year.

A management contract beneficial to Annaly
Annaly says that the decision to move to an external management system is in the best interests of both the company and the stockholders. The company lays out several ways that its new paradigm would be superior to other external management agreements, after researching the subject thoroughly with the help of advisors from Credit Suisse.

For instance, Annaly will pay an annual management fee of 1.05% of stockholder equity, less than the industry average of 1.50%. Also, if the Manager is sold, Annaly would receive the proceeds, not the Manager’s owners. The Manager would oversee Annaly only, avoiding conflicts of interest. Annaly would also require the officers who own the Manager to purchase stock at a rate of 6 times their base salary — thus cementing their loyalty to the company. Interestingly, the five owners of the Manager all sit on Annaly’s board.

Not an unusual setup
Annaly is familiar with outside management contracts. Its wholly owned subsidiary, FIDUC, manages both Chimera Investment , a hybrid mREIT, and CreXus Investment , the purchaser of commercial mortgage-backed securities that Annaly is in the process of acquiring.

Chimera’s recent 10-K report notes that there is a risk of conflict when an outside Manager is in charge of more than one entity, something Annaly is seeking to avoid. Chimera has also paid higher management fees than average — the most recent being 1.87%, including expenses, for the last quarter of 2011 As I’ve recently noted, there are close familial relationships between Chimera’s and Annaly’s boards.

Why the change?
As Annaly notes, many other mREITsuse outside management, such as American Capital Agency and Two Harbors. The reasons for the desired change seem to be mostly financial, and tied to the way the company pays its executives. Annaly estimates that the savings will be in the neighborhood of $210.9 million over the next five years, if the proposal is ratified. One way Annaly would realize these savings, assumedly, is because the company would be able to deduct expenses tied to “certain payments made …read more
Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

I'm Selling These 2 High-Yield Stocks

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By Jim Royal, The Motley Fool

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It’s time to sell a pair of stocks from my Special Situations portfolio. Those stocks are the preferred Series D stock of Ramco-Gershenson Properties Trust and Annaly Capital .

Ramco-Gershenson Properties Trust
It’s hard to believe it was just four months ago when the portfolio purchased the convertible preferreds of Ramco. The intent behind the purchase was to have a cash-generating security with some potential for upside and limited downside. And buying the convertibles with their higher yield offered that opportunity. They had a higher yield than the common while still offering upside via their convertible feature, allowing the holder to exchange the preferred for common stock.

In total, the purchase provided more than a 20% return in about four months. That’s about $1.81 in dividends plus capital appreciation from $51.93 to $60.75 (as I write).

While the dividend still looks nice, at nearly 6% (compared to the common stock‘s 4.2% yield), I think the common stock — the key driver of the convertible preferreds — is reasonably valued now. In its latest annual guidance, the company predicted a midpoint of $1.07 per share in funds from operations (FFO), compared to $1.04 for 2012. That’s modest growth for a stock trading at 15 times forward FFO.

But could there be more FFO growth on the way? The company announced a new deal recently to buy the remaining 70% in a joint venture of properties that it didn’t already own. While the properties look to be higher quality and at a decent cap rate (7.4%), the financing and the constraints of Ramco’s deleveraging mean that not much of the immediate value accrues to the common stock. For example, I estimate that revenue will go up 16%, while the number of common shares increases 14%. Admittedly, there’s operating leverage in this type of business, but I’m not sure how much further FFO could grow.

Another source of increasing stock price would be dividend growth, but for now, I do not expect above-normal growth as the company continues working to deleverage. The recent payout increased just 3%.

So after a nice run, I’m saying goodbye to the Series D preferreds of Ramco-Gershenson.

Annaly Capital
In addition, my Special Situations portfolio is selling Annaly. I purchased two different lots back in 2011, at prices of $18.11 and $17.75, largely as a hedge against a declining or exploding economy and Congressional disability. Including dividends, those positions came out with a 7% gain and a 6% gain.

While the company continues to expand into new lines to help boost its interest rate spread, it’s also adding new risk. Formerly, Annaly was exclusively focused on agency-backed securities, meaning it had no credit risk. Now, its future plans include assuming new risks in exchange for greater reward.

Annaly’s dividend has declined markedly in recent quarters, and book value dropped quickly in the most recent quarter, down 4.5%. With book value now at $15.85 per share and the stock hovering just below …read more
Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

8 Tax Mistakes You Can't Afford to Make

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By Dan Caplinger, The Motley Fool

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As the April 15 tax-filing deadline approaches, you’re running out of time to get your taxes done. But smart tax planning doesn’t start in April. To truly get on top of your taxes, you need to always be thinking ahead. As you prepare your 2012 return, don’t forget about changes you can do right now to make your 2013 tax situation a lot better.

The best way to make taxes a lot less painful is to avoid making unnecessary mistakes. Below, we’ll look at eight things taxpayers commonly do wrong that can cost them thousands of dollars in extra taxes.

Recommendation: Pay less in taxes by using the many special tax-favored accounts that the IRS allows.

  • IRAs, 401(k) plans, and other employer-sponsored retirement accounts.
  • 529 plans and Coverdell Education Savings Accounts, which offer tax-free growth when proceeds are used for approved expenses.
  • Health savings accounts and flexible spending accounts provide tax benefits for your medical spending.

Bottom line: Not using these accounts is like handing over free money to Uncle Sam.

Recommendation: When possible, opt for longer holding periods, since the capital gains rate you pay depends on how long you held the investment.

  • Hold an investment less than a year, and you’ll pay your ordinary rate of as much as 39.6% this year.
  • Hold it more than a year, and the maximum is 20%, with many taxpayers paying lower rates of 15% or even 0%.

Bottom line: Long-term investing can be rewarding.

Recommendation: You must have enough tax withheld from your paycheck to cover most of your tax liability when you file your return.

  • If you don’t withhold enough, you’ll pay penalties and interest on what you should have paid in estimated taxes.

Bottom line: It’s too late to fix for the 2012 tax year, but be sure to look up Form 1040-ES to make sure you’re in good shape this year.

Recommendation: If you have tax-favored accounts, make sure you use them wisely.

  • High-income bonds, as well as real estate investment trusts Annaly Capital and American Capital Agency produce income that’s typically taxed at high ordinary-income rates, and so they often do best in IRAs rather than taxable accounts.
  • By contrast, a low- or no-dividend stock that you buy and hold for decades may actually cost you more in taxes in an IRA than a taxable account.

Bottom line: Position your investments to make the most of available tax savings.

Recommendation: Be smart about harvesting tax losses, timing deductible expenses, or deferring taxable income.

  • Late last year, many taxpayers did their best to pull income into 2012 and leave deductions for 2013 in order to capture lower 2012 tax rates and reduce their 2013 tax liability.

Bottom line: With taxes, timing is key.

Recommendation: Be sure to consider special tax rules for certain investments

Business, Finance, Occupation & Industry

This Mortgage REIT is Trying Something Completely Different

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By Amanda Alix, The Motley Fool

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While times have been tough for all mortgage REITs, those that dabble exclusively in government sponsored entity-backed paper have suffered the most from QE3, as shrinking dividends become the norm. Even hybrid mREITs like Two Harbors , which invests in both GSE mortgage-backed securities as well as non-agency backed MBSes, experienced a temporary drop in their payout last fall, though they made up for it by year’s end.

Hybrid mREITs are more flexible in their investments than their pure-agency brethren, and Two Harbors has proved itself more adaptable than most. Late last week, the company announced that one of its subsidiaries is now licensed to service mortgage loans, which allows Two Harbors to invest in mortgage servicing rights for loans backed by Freddie Mac. This puts the mREIT in league with MSR heavies Nationstar Mortgage and Ocwen Financial.

Not afraid to take a new direction
The business of servicing mortgages has taken off over the past year or so, as banks sell their MSRs to comply with new capital rules. Both Nationstar and Ocwen have seen explosive growth in the last year, with both companies seeing a share value increase of about 150% during that time. Mortgage servicing is lucrative — a fact that did not go unnoticed by Two Harbors.

This is not the first time the trust has jumped on a profitable new bandwagon. Noting the big profits being realized by private equity firms like Blackstone Group, Two Harbors created a portfolio of foreclosed single-family homes to renovate and rent, then spun off said portfolio into a stand-alone mREIT called Silver Bay Realty . Though the stock has cooled a bit from its meteoric rise a few weeks ago, insiders apparently have faith in the company, purchasing 37,750 shares so far this month.

Stalwarts are changing strategies, too
Even a couple of pure-agency players have exhibited a new flexibility lately. As fans of the sector know, Annaly Capital has recently announced its intention to branch out into commercial MBSes through its planned purchase of CreXus Investment , a trust it already manages. Also, Western Asset Mortgage noted in its December dividend announcement that it had, for the very first time, added some non-agency MBSes to its formerly agency-only mix.

Times are changing, and many mortgage REITs are finding that a willingness to adjust can be good for business — which generally means good tidings for investors, as well.

There’s no question Annaly Capital‘s double-digit dividend is eye-catching. But can investors count on that payout sticking around? With the Federal Reserve keeping interest rates at historically low levels, Annaly has had to scramble to defend its bottom line. In The Motley Fool’s premium research report on Annaly, senior analysts Ilan Moscovitz and Matt Koppenheffer uncover the key challenges the company faces and divulge three reasons investors may consider buying it. Simply click here now to claim your copy today!

…read more
Source: FULL ARTICLE at DailyFinance