Should You Buy Annaly Stock for Its Staggering 14.34% Dividend Yield?

Core Viewpoint - Annaly Capital Management, Inc. (NLY) is demonstrating strong financial health with a high dividend yield of 14.34%, surpassing the industry average of 12.2%, and has recently increased its dividend for the first time in five years, indicating confidence in its cash flow and growth prospects [1][2]. Dividend and Payout - Annaly's current payout ratio stands at 101%, which is typically a signal for potential dividend cuts; however, the company has recently raised its dividend by 7.7% to 70 cents per share for Q1 2025 [1][2]. - The company has a share repurchase program authorized for up to $1.5 billion, which will expire on December 31, 2029, although no shares have been repurchased under this plan yet [5]. Market Conditions - The Federal Reserve's interest rate reduction of 100 basis points in 2024 has led to a decline in mortgage rates, with the average 30-year fixed-rate mortgage at 6.76% as of May 8, 2025, down from 7.09% a year prior [7]. - The decline in mortgage rates is expected to enhance purchase originations and refinancing activities, which will likely improve Annaly's book value and net interest spread [8]. Investment Strategy - Annaly's investment portfolio is well-diversified, totaling $84.9 billion as of March 31, 2025, including residential credit, mortgage servicing rights (MSR), and agency mortgage-backed securities (MBS) [9][10]. - The company has exited its Middle Market Lending portfolio and commercial real estate business to focus on its core housing finance strategy, enhancing its capabilities in residential credit and MSR [11]. Financial Performance - Over the past year, Annaly's shares have increased by 10.2%, outperforming the industry and its peers, AGNC Investment and Arbor Realty Trust, which saw gains of 5% and a decline of 14.5%, respectively [13]. - Annaly is trading at a forward price-to-tangible book (P/TB) multiple of 1.00X, which is higher than the industry average of 0.91X, indicating a relatively inexpensive valuation compared to its peers [15]. Sales and Earnings Estimates - Zacks Consensus Estimates project sales of $1.47 billion for the current year and $1.66 billion for the next year, reflecting significant year-over-year growth of 492.83% and 13.21%, respectively [21]. - Earnings per share (EPS) estimates for the current year stand at $2.87, with a year-over-year growth estimate of 6.30% [22].