9 High-Yield Shares Compared

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]