Annaly Stock Gains 8% in 6 Months: Is It Worth Holding for Now?

Core Viewpoint - Annaly Capital Management (NLY) has demonstrated strong stock performance, gaining 8% over the past six months, significantly outperforming the industry average of 1.7% and its peers AGNC Investment and Arbor Realty Trust [1][4]. Price Performance - NLY's stock has outperformed AGNC Investment, which grew by 5.7%, and Arbor Realty Trust, which fell by 20.9% during the same period [4]. Interest Rate Impact - The Federal Reserve's reduction of interest rates by 100 basis points in 2024 has led to a slight decline in mortgage rates, with the average 30-year fixed-rate mortgage at 6.84% as of June 12, 2025, down from 6.95% a year prior [6]. - Lower mortgage rates are expected to improve housing affordability and increase loan demand, which will benefit NLY [7]. Financial Outlook - NLY is likely to see improvements in book value due to rising purchase originations and refinancing activities, as well as tightening spreads in the Agency market, which will enhance net interest spread and overall yield [8]. - The company has a strong dividend profile, currently yielding 14.7%, higher than the industry average of 11.7%, with a recent 7.7% increase in its dividend payout [9]. Liquidity and Capital Management - As of the end of Q1 2025, NLY had $7.5 billion in total assets available for financing, including $4.7 billion in unencumbered Agency MBS, providing substantial liquidity [11]. - The company has authorized a share repurchase program of up to $1.5 billion, which will expire on December 31, 2029, although no shares have been repurchased under this plan yet [12]. Diversification Strategy - NLY's diversified capital allocation includes residential credit, mortgage servicing rights (MSR), and agency mortgage-backed securities (MBS), totaling an investment portfolio of $84.9 billion as of March 31, 2025 [13][15]. - The inclusion of MSRs is significant as they tend to increase in value when interest rates rise, providing a hedge against declines in agency MBS [16]. Valuation Analysis - NLY is currently trading at a forward 12-month price-to-tangible book (P/TB) multiple of 0.98X, which is higher than the industry average of 0.96X, indicating a premium valuation [17][20]. Analyst Sentiment - Analysts have revised earnings estimates upward over the past 60 days, indicating a constructive sentiment around NLY's stock [22].