Wednesday, April 23, 2025

Will History Repeat Itself for This 16% Yielder?

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Will History Repeat Itself for This 16% Yielder?

Marc Lichtenfeld, Chief Income Strategist, The Oxford Club

Marc Lichtenfeld

In June of 2022, I reviewed the dividend safety of Annaly Capital Management (NYSE: NLY). I warned investors, "If you own Annaly, expect another dividend cut within the next year or two." At the time, the quarterly dividend was $0.88 per share. Nine months later, it was lowered to $0.65.

It stayed there through all of 2023 and 2024. Then, this year, it was raised to $0.70 in the first quarter.

Now, with a juicy 16% yield, has Annaly turned the corner back toward dividend growth?

Annaly Capital Management is a mortgage real estate investment trust, or REIT, that focuses on individual residences. It has an $81 billion portfolio that has financed more than 900,000 homes.

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Net interest income is the cash flow metric that we look at for mortgage REITs. Annaly's is not good. It's been falling like a stock market in the face of new tariffs (too soon?).

Chart:
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Last year, net interest income rose to $248 million from -$111 million the year before. But that was still a fraction of the nearly $1.5 billion the company made in 2022. This year, net interest income is expected to be nearly cut in half to $130 million.

With cash flow falling (and expected to keep falling), Annaly's Safety Net scorecard is not off to a strong start.

Is there anything that can salvage its mouthwatering 16% yield?

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