Dividend Stocks to Buy Now: Annaly Capital Management (NLY)
NLY Dividend Yield: 11.9%
And finally, we come to the battered and bruised mortgage REIT Annaly Capital Management (NLY), which is down by about 40% from its May highs.
Mortgage REITs have taken an absolute beating since the Fed first started hinting about tapering in May. The reason? Mortgage REITs are highly leveraged, and the market feared that rising yields would take a bite out of net asset values, which could in turn force the REITs to liquidate their holdings at unfavorable prices.
Well, yes, this is true. But most of the sector now trades at deep discounts to NAV; Annaly stock trades for just 80% of book value. Sure, NAV is a moving target, and it may well be slightly overstated based on last quarter’s values. But with NLY stock trading at a 20% discount to book, there is a pretty wide margin of safety.
Furthermore, higher yields are actually good for the REIT’s continuing operations. Remember, mortgage REITs make money by borrowing short-term and investing the proceeds in mortgages and mortgage securities. The Fed has indicated that it intends to hold short-term rates at close to zero for the foreseeable future even as it backs away from quantitative easing. This means that Annaly’s spread will be a lot wider going forward than it has been in recent years.
And it would appear that I am not the only person who sees value in NLY stock at current prices. Company insiders have been buying aggressively since May, and insiders bought 238,000 shares of Annaly Capital Management worth $2.5 million in November alone.
NLY stock currently yields about 11.9%, and total returns of 50%-100% over the next 12-18 months are highly likely.
Charles Lewis Sizemore, CFA, is the chief investment officer of the investment firm Sizemore Capital Management and the editor of Macro Trend Investor. As of this writing, he was long O, NNN, ARCP, KMI and TEF.