Here's How to Play Annaly Stock as Mortgage Rates Continue to Decline

Core Insights - Annaly Capital Management's (NLY) performance is significantly influenced by mortgage rates, which have recently declined to the lowest level of 2025, with the average 30-year fixed mortgage rate falling to 6.26% as of September 17, down from 6.43% the previous week and 6.91% at the start of 2025 [1][2] Group 1: Mortgage Market Dynamics - Housing affordability challenges are decreasing due to lower mortgage rates, leading to increased loan demand and positive trends in mortgage originations and refinancing [2] - The Federal Reserve cut its benchmark interest rate by 25 basis points to 4.00-4.25% on September 17, 2025, with potential for two additional reductions by year-end, which will enhance NLY's net interest income (NII) [3] - NLY's NII increased to $493.2 million in the first half of 2025, compared to $47.1 million in the same period a year ago [3] Group 2: Portfolio and Investment Strategy - NLY's diversified investment strategy includes Agency mortgage-backed securities (MBS), residential credit, and mortgage servicing rights (MSR), with a total portfolio of $89.5 billion as of June 30, 2025 [6] - The MSR portfolio provides attractive yields and hedges against mortgage basis volatility, contributing to more consistent returns [7] - The company's focus on residential credit supports stable returns across various economic scenarios, having exited commercial real estate and Middle Market Lending businesses [8][9] Group 3: Financial Position and Returns - NLY maintains a strong liquidity position with $7.4 billion in total assets available for financing, including $4.7 billion in cash and unencumbered Agency MBS [10][11] - The company offers a dividend yield of 12.9%, higher than the industry average of 12%, and has a $1.5 billion share repurchase program [11][15] - NLY's shares have gained 18.6% year-to-date, outperforming the industry growth of 5.9% [16] Group 4: Valuation and Growth Estimates - NLY is trading at a forward 12-month price-to-tangible book (P/TB) multiple of 1.13X, higher than the industry average of 1.08X [19] - The Zacks Consensus Estimate for NLY's 2025 sales implies year-over-year growth of 463.4%, with earnings growth estimates of 7.0% for 2025 [23][26]