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Business, Finance, Occupation & Industry

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

Business, Finance, Occupation & Industry

Look Out for Falling mREIT Dividends

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By Amanda Alix, The Motley Fool

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So far, 2013 has been sweet to stocks, with the month of March being especially delightful. The Dow Jones Industrial Average has stayed up above the 14,000 mark this month, hitting highs not seen in years. In the banking sector, the positive results of the Fed’s latest stress tests has investors buzzing about seeing increased dividends from the biggest banks, some of which have been awarding embarrassingly skimpy payouts since the financial crisis.

Unfortunately, dividend news is much less agreeable from the lethargic mortgage REIT sector, which has been known in the past for its payout power. Those that invest primarily in government-sponsored-entity paper have been particularly hard-hit, and companies like Annaly Capital , Hatteras Financial , and Apollo Residential Mortgage have all slashed dividends over the past few months. Late last week, CYS Investments joined the lineup, declaring a dividend that dropped to $0.32 from the previous $0.40.

A battle-scarred sector
As stalwart mREIT investors well know, the Fed’s QE3 program has been squeezing these trusts, crimping profits as spreads continue to contract. Annaly’s spread decreased to 0.95% in the last quarter, a decrease of 76 basis points year over year, and seven BPS from the prior quarter. Hatteras saw its spread drop to 1.08% last quarter from 1.22% in the third quarter, and 1.56% from one year prior.

Likewise, CYS saw its spread fall to 1.08% from 1.41% in Q3, and a far cry from its 1.80% from the fourth quarter of 2011. Only Apollo kept its spread intact, at 2.7%, from the last three months of 2011 to the last quarter of 2012.

Dividends suffer for most
As spreads compress, so have the dividends paid. CYS‘ payout has dropped steadily since its heyday of 2010 to 2011, when it hovered at $0.60 for five quarters. More recently, it paid $0.50 as recently as last June. Hatteras paid out a $0.90 quarterly dividend in June, which shrank to $0.70 this past December. Apollo’s December payout of $0.70 was less than its $0.85 paid at the end of September, and Annaly last announced a divvy of $0.45 at the end of the fourth quarter, down from the $0.55 it bestowed in June of last year.

Notably, however, both CYS and Apollo paid a special dividend at the end of December — CYS in the amount of $0.52, and Apollo, $0.35. While both companies explained  the special payment as a way to clear the decks of 2012 taxable income, it surely doesn’t bode well for divvy payments coming up this year.

Hope springs eternal
All is not doom and gloom, however. Though Fed Chair Ben Bernanke recently reiterated his commitment to big mortgage-backed security purchases, a vocal minority on his board are clamoring to cut the easing short. Since unemployment numbers came in a smidge better late last week, this concept may gain traction.

Just as many investors have seen the losses of the past few years recede as of late, waiting out …read more
Source: FULL ARTICLE at DailyFinance