Core Viewpoint - Annaly Capital Management, Inc. (NLY) has issued a new preferred share, NLY-J, which has seen a price increase from $24.90 to $25.53 shortly after trading began, reducing its initial appeal of potential price appreciation as it became more accessible to investors [1] Ticker Changes - The preferred shares transitioned from NNLYV to NNLYP and are now trading as NLY-J, with some brokers already adopting the new ticker [2] Dividend Accumulation - The dividend accrual is based on the ex-dividend date rather than the payment date, which can be confusing for investors; NLY-J shows a dividend accrual of $0.18 despite being newly launched, anticipating an ex-dividend date of 11/28/2025 [3][5][6] Yield to Call - The yield to call for NLY-J was approximately 8.9% at the initial coverage but has decreased to about 8.4% due to share price appreciation [7] Comparison with Baby Bonds - Baby bonds are available with yields around 9%, but NLY-J offers a better stripped yield compared to many fixed-rate shares, despite the potential for NLY to suspend preferred dividends [9][10][13] Interest Rate Impact - NLY-J has no maturity and offers fixed rates indefinitely, which could be a disadvantage if interest rates rise significantly; however, the forward yield curve suggests potential rate cuts [11][12] Predictions for NLY-J - If the Federal Reserve cuts rates without triggering a recession, NLY-J prices could exceed $26 within a year; otherwise, baby bonds may perform better in recession or rising rate scenarios [15][16]

Core Insights - Annaly Capital (NYSE:NLY) had a normal quarter with minor changes, experiencing a slight decrease in the value of its assets, which was anticipated, and the stock is currently considered overpriced [1][15] Financial Performance - NLY recorded a minor quarterly book value (BV) decrease that aligned with expectations, with a total net valuation gain of $147 million during Q2 2025, outperforming the projected gain of $110 million [2][10] - Core earnings/EAD for NLY matched expectations with a slight increase compared to Q1 2025, driven by a larger on-balance sheet portfolio size [4][10] - The hedging coverage ratio decreased from 102% to 95%, which was anticipated, indicating a slight reduction in risk management strategies [3][6] Valuation Metrics - The reported GAAP BV per share was $18.45, slightly above the projected $18.35, reflecting a 0.54% outperformance [10] - The stock price is currently at $21.14, leading to a dividend yield of 13.25% and a payout ratio of 96%, indicating a high dividend relative to earnings [12] Market Position - NLY's performance in terms of BV decrease and core earnings increase is expected to outperform most agency mREIT peers, suggesting a relatively strong position in the market [5][14] - The company remains in a good position to maintain its quarterly dividend of $0.70 per common share, despite core earnings only slightly covering this amount [14]

Mortgage Market Overview - Mortgage rates are currently at the lowest levels of 2025, with the average 30-year mortgage rate at 6.58% as of August 21, 2025, unchanged from the previous week and down from 6.91% at the start of 2025 [1][9] - The decline in mortgage rates reflects market optimism for potential Federal Reserve rate cuts later in the year, along with changing inflation and bond market dynamics [4] mREITs Performance and Outlook - mREITs such as Apollo Commercial Real Estate Finance (ARI), Annaly Capital Management (NLY), and Orchid Island Capital (ORC) are expected to benefit from lower mortgage rates, which are lifting mortgage originations and driving stronger refinancing activity [5][9] - With improving purchase originations and refinancing activities, mREITs are likely to see book value improvement as Agency market spreads tighten, enhancing net interest spread and financial performance [7][9] Apollo Commercial Real Estate Finance (ARI) - Apollo Commercial has a portfolio of $8.6 billion in loans, primarily secured by properties in the U.S. and European gateway cities, with 96% of its lending consisting of floating-rate loans [10] - Despite a 23.9% year-over-year decline in net interest income (NII) in the first half of 2025, NII is expected to rise due to declining mortgage rates, with a current dividend yield of 9.9% and a payout ratio of 96% [11] Annaly Capital Management (NLY) - Annaly manages an $89.5 billion portfolio, with a focus on residential credit, mortgage servicing rights (MSRs), and Agency mortgage-backed securities (MBS), which helps reduce volatility and interest rate sensitivity [14][15] - NLY's NII increased to $493.2 million in the first half of 2025 from $47.1 million a year ago, supported by improving purchase originations and refinancing, with a current dividend yield of 13.6% and a payout ratio of 99% [16][17] Orchid Island Capital (ORC) - Orchid focuses on Agency residential mortgage-backed securities (RMBS) and has seen its NII rise to $42.9 million in the first half of 2025, compared to net interest expenses of $3.2 million in the same period last year [22] - The company currently offers a dividend yield of 20.4% and has increased its dividend twice in the past five years, with earnings estimates indicating significant year-over-year growth of 450% and 39.7% for 2025 and 2026, respectively [23]

Group 1 - The article highlights a new preferred stock from Annaly Capital Management, specifically the 8.875% fixed-rate Series J (NLY.PR.J) [1] - Mortgage REIT preferreds are emphasized as an important sector for income investors due to their high yield potential [1] - The article suggests exploring various investment tools and portfolios designed for yield and risk management in the mortgage REIT sector [1]

Core Insights - Annaly Capital Management (NLY) shares have increased by 10.3% in the first half of 2025, outperforming the industry growth of 5.1% and its peers AGNC Investment (7.6% growth) and Arbor Realty Trust (17.8% decline) [1][7]. Company Overview - Annaly is a mortgage real estate investment trust (REIT) that primarily owns, manages, and finances a portfolio of real estate-related investment securities, utilizing a diversified capital allocation strategy to navigate market fluctuations [2][3]. Portfolio Composition & Strategy - Annaly's investment portfolio totals $89.5 billion as of June 30, 2025, with $79.5 billion in a highly liquid Agency portfolio, which helps lower volatility and interest rate sensitivity while generating attractive risk-adjusted returns [3][4]. - The company is focusing on acquiring newly originated mortgage servicing rights (MSRs) to enhance its MSR business, which tends to increase in value as interest rates rise, offsetting declines in agency mortgage-backed securities (MBS) [5][10]. Financial Performance - Net interest income (NII) surged to $493.2 million in the first half of 2025, a significant increase from $47.1 million in the same period the previous year, driven by improving loan demand [7][18]. - Annaly's dividend yield stands at 13.6%, higher than the industry average of 12.5%, with a payout ratio of 99% [11][14]. Market Position & Outlook - The company has a strong liquidity position with $7.4 billion in total assets available for financing, including $4.7 billion in unencumbered Agency MBS, providing a competitive edge in adverse market conditions [15]. - Analysts have revised earnings estimates for 2025 and 2026 upward, indicating a bullish outlook with expected year-over-year growth of 7% and 2.5%, respectively [21]. Valuation Metrics - Annaly is currently trading at a forward 12-month price-to-tangible book (P/TB) multiple of 1.07X, which is higher than the industry average of 1.01X, suggesting a premium valuation compared to peers [24].

Group 1: Annaly Capital Management (NLY) - NLY has four preferred shares, with NLY-F and NLY-I showing materially negative yield to call, while NLY-G has a positive yield to call of 8.73%, which is lower than most baby bonds in the sector [2] - A new preferred share, NLY-J, has been issued with a fixed-rate coupon of 8.875%. The share is callable after five years, limiting upside if rates fall, while increasing interest rate risk if rates rise [3] - NLY-J's trading price has increased from $24.80 to $25.10, indicating a common trend for preferred shares to rise in the initial weeks after issuance [4] Group 2: MFA Financial (MFA) - MFA has two preferred shares and two baby bonds, with MFA-C showing a reasonable floating spread of 5.79% over 3-month LIBOR, resulting in a stripped yield of approximately 10.3% to 10.4% at a price of $24.23 [5][6] - MFA-B is a fixed-rate share with an 8.84% stripped yield at $21.58, but the potential upside is limited, making it less attractive compared to baby bonds [8] - Overall, MFA-C is slightly favored over MFA-B, but baby bonds are preferred if their prices dip modestly, as this can significantly impact yield to call and yield to maturity [9] Group 3: ARMOUR Residential REIT (ARR) - ARR was the worst-performing mortgage REIT last week, with shares dropping 4.6%, significantly worse than peers [13][14] - The price-to-NAV for ARR has decreased to a projected 0.92x, indicating a decline in market sentiment following a public offering announcement [14][16] - The public offering was made at about 98% of book value, which did not excite shareholders, contributing to the decline in share price [16]

Core Insights - Zacks Premium offers various tools to help investors make informed decisions and enhance their confidence in the stock market [1][2] Zacks Style Scores - Zacks Style Scores are indicators that rate stocks based on value, growth, and momentum characteristics, helping investors identify stocks likely to outperform the market in the short term [2][3] - Each stock is rated from A to F, with A indicating the highest potential for outperformance [3] Value Score - The Value Style Score focuses on identifying undervalued stocks using financial ratios such as P/E, PEG, Price/Sales, and Price/Cash Flow [3] Growth Score - The Growth Style Score emphasizes a company's financial health and future growth potential, analyzing projected and historical earnings, sales, and cash flow [4] Momentum Score - The Momentum Style Score is designed for traders who capitalize on price trends, utilizing factors like recent price changes and earnings estimate revisions [5] VGM Score - The VGM Score combines the Value, Growth, and Momentum Scores, providing a comprehensive rating that highlights stocks with attractive value, strong growth forecasts, and positive momentum [6] Zacks Rank - The Zacks Rank is a proprietary model that uses earnings estimate revisions to help investors build successful portfolios, with 1 (Strong Buy) stocks achieving an average annual return of +23.75% since 1988 [7][10] - Stocks with a 1 or 2 rank and Style Scores of A or B are recommended for maximizing returns [9] Company Spotlight: Annaly Capital Management (NLY) - Annaly Capital Management, Inc. is a mortgage real estate investment trust (mREIT) that manages a portfolio of real estate-related investment securities, including mortgage pass-through certificates and collateralized mortgage obligations [11] - NLY holds a 3 (Hold) rating on the Zacks Rank, with a VGM Score of B and a Momentum Style Score of B, indicating a positive trend with a 3.9% increase in shares over the past four weeks [12] - Recent upward revisions in earnings estimates for fiscal 2025 have led to a consensus estimate increase of $0.02 to $2.89 per share, with an average earnings surprise of +2.2% [12][13]

Core Viewpoint - Annaly Capital Management offers a high dividend yield of 13%, but it is not a reliable income investment and should be considered as part of a diversified portfolio focused on total returns rather than income generation [2][10]. Group 1: Dividend Yield and Investment Reliability - Annaly Capital's dividend yield is significantly higher than the S&P 500's 1.2% and the average REIT's 3.9% [2]. - The volatility of Annaly's dividend and its stock price tends to move in tandem, indicating that long-term investors may end up with reduced income and capital [4]. - The nature of Annaly as a mortgage REIT complicates its income reliability, as the yield is affected by mortgage repayments and market dynamics [5]. Group 2: Total Return Focus - Annaly Capital aims for attractive total returns rather than consistent income, making it essential for investors to reinvest dividends to benefit fully [7]. - The total return of Annaly is comparable to that of the S&P 500 over time, but with a different return profile, making it a valuable addition to a diversified asset allocation portfolio [8]. - Including Annaly in a portfolio can provide returns that are not directly correlated with stock market performance, enhancing overall portfolio returns [9]. Group 3: Investment Complexity - Annaly is more complex than traditional property-owning REITs, which may deter income-focused investors despite its high dividend yield [10].

Core Insights - Annaly Capital Management, Inc. (NLY) reported second-quarter 2025 adjusted earnings available for distribution (EAD) per average share of 73 cents, exceeding the Zacks Consensus Estimate by 1.4% and reflecting a 7.4% increase from the previous year, primarily driven by a significant rise in net interest income (NII) [1][10] Financial Performance - NLY's net interest income (NII) for the second quarter of 2025 was $273.2 million, a substantial increase from $53.6 million in the same quarter of the previous year, attributed to rising loan demand and lower mortgage rates [3][10] - The company's 2025 earnings outlook has been raised, supported by tightening spreads and improving asset prices [10] Market Conditions - The Federal Reserve's decision to lower interest rates by 100 basis points in 2024 has led to a slight decline in mortgage rates, improving housing affordability [2] - With lower rates and balanced supply/affordability in the mortgage market, loan demand is increasing, which is beneficial for NLY's NII [3] Competitive Landscape - AGNC Investment's NII also benefited from lower mortgage rates, reporting $162 million in the second quarter of 2025, compared to a net interest expense of $3 million in the prior-year quarter [5] - Arbor Realty Trust (ABR) experienced a decline in NII by 21.9% year over year to $68.7 million in the second quarter of 2025, but is expected to see an increase in net interest spreads due to declining mortgage rates [7] Valuation Metrics - NLY shares have appreciated by 22.3% over the past year, outperforming the industry growth of 8.1% [8] - The company trades at a forward price-to-tangible book (P/TB) ratio of 1.07X, which is above the industry average of 0.96X [12] Earnings Estimates - The Zacks Consensus Estimate for NLY's 2025 earnings implies a year-over-year growth of 6.3%, with the estimate revised upward over the past week [15]

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