Is Annaly Stock Worth a Spot in Your Portfolio Post Q2 Earnings Beat?

Core Insights - Annaly Capital Management (NLY) reported second-quarter 2025 results with earnings exceeding the Zacks Consensus Estimate, demonstrating resilience amid tariff-related uncertainties and mortgage market volatility [1][4] - The company achieved a positive economic return of 0.7% for the seventh consecutive quarter, supported by its agency, residential credit, and mortgage servicing rights strategies [3] Financial Performance - The average yield on interest-earning assets was 5.42%, an increase from 5.17% in the prior-year quarter [1] - The average net interest spread rose to 1.47% from 1.24% year-over-year, while the net interest margin was 1.71%, up from 1.24% in the same quarter of 2024 [2] - Net interest income (NII) surged to $273.2 million in Q2 2025, compared to $53.6 million in the prior-year quarter [6] - Book value per share decreased to $18.45 as of June 30, 2025, down from $19.25 a year earlier [3] Market Conditions - The Federal Reserve's interest rate cuts have led to a slight decline in mortgage rates, with the average 30-year fixed-rate mortgage at 6.74% as of July 24, 2025, down from 6.78% a year prior [5] - Housing affordability challenges are easing, contributing to increased loan demand, which positively impacted NLY's financials [6] Portfolio Strategy - Annaly's diversified capital allocation includes residential credit, mortgage servicing rights, and agency mortgage-backed securities, totaling an investment portfolio of $89.5 billion [8][10] - The company is focusing on acquiring newly originated mortgage servicing rights to enhance its MSR business, which tends to increase in value as interest rates rise [11] Dividend Profile - Annaly has a strong dividend yield of 13.5%, significantly higher than the industry average of 12.4%, with a payout ratio of 99% [14][17] - The company raised its dividend by 7.7% in March 2025, reflecting confidence in its cash flow and growth prospects [17] Stock Performance - Over the past six months, Annaly shares have increased by 8.4%, outperforming the industry average of 2.8% and peers like AGNC Investment and Arbor Realty Trust [20][21] - The Zacks Consensus Estimate indicates substantial year-over-year growth in sales of 463.4% for 2025 and 29.2% for 2026 [24] Investment Outlook - Annaly is positioned to deliver stable, risk-adjusted returns due to improving interest spreads, a diversified portfolio, and solid liquidity reserves [30] - The company is trading at a forward P/E multiple of 6.97X, lower than the industry average of 7.98X, suggesting an attractive valuation [31]