NLY - 3 Things You Need to Know If You Buy Ultra-High-Yield Annaly Capital Today
2024-06-20 03:03:00 ET
The first screen that most dividend investors use is often based on dividend yield. The cutoff is normally on the low side, say 4%, so you limit your candidate list to high-yield stocks. However, after some point, higher yields don't necessarily indicate desirable opportunities. That's the case with Annaly Capital (NYSE: NLY) and its dividend yield of 12.8%. Sure, that's a huge yield, but you need to understand these three facts before you buy it.
Annaly Capital is a real estate investment trust (REIT), a corporate structure that is specifically designed to pass income on to investors via dividends. Most REITs own physical properties and lease those assets out just like you would if you owned a rental property. The big difference is that REITs generally own institutional level properties, like apartment buildings and warehouses. Mortgage REITs don't do that. Annaly owns a portfolio of bond-like securities that were created by pooling mortgages together. This is drastically different from a property-owning REIT.
For starters, mortgage bonds are traded all day long while properties tend to trade infrequently. That means that the value of mortgage bonds will react quickly to changes in the market, such as rising and falling interest rates, property market dynamics, and mortgage repayment trends. The value of Annaly Capital is basically the value of its mortgage bond portfolio, so good and bad news flows through to the stock price very quickly. If you are an income investor looking for an easy-to-understand, perhaps even boring, dividend stock, Annaly Capital is not going to be for you. You should really spend some time digging into the mortgage space to understand the niche before you step into it.
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3 Things You Need to Know If You Buy Ultra-High-Yield Annaly Capital Today