How to Approach Annaly Stock With Easing Mortgage Rates in 2026

Core Viewpoint - Annaly Capital Management's performance is closely linked to mortgage rates and Federal Reserve policies, with recent trends indicating lower mortgage rates which may enhance housing affordability and support growth in home purchases and refinancing activities [1][2]. Mortgage Rates and Federal Reserve Policy - Mortgage rates have decreased to 6.09% as of February 12, 2026, down from 6.11% the previous week and significantly lower than 6.87% a year ago [1]. - The Federal Reserve has maintained its benchmark federal funds target range at 3.50-3.75% and is expected to implement two 25-basis-point rate cuts later in 2026, which will reduce funding costs for mortgage REITs [3]. Financial Performance - Annaly's net interest income (NII) rose to $1.14 billion in 2025 from $247.8 million the previous year, reflecting improved earnings due to lower funding pressure [3]. - The Zacks Consensus Estimate for Annaly's 2026 sales indicates a year-over-year growth of 74%, with projected sales of $1.98 billion [16]. Portfolio Diversification - Annaly operates a diversified investment platform that includes Agency mortgage-backed securities (MBS), residential credit, and mortgage servicing rights (MSR), which aids in balancing income generation and risk management [5]. - As of December 31, 2025, Annaly's investment portfolio totaled $104.7 billion, with $92.9 billion in highly liquid Agency MBS, primarily rated 'AAA' [6]. Strategic Initiatives - The company is expanding its MSR platform through a long-term agreement with PennyMac Financial Services, enhancing its servicing capabilities and operational efficiency [7]. - Annaly has exited its commercial real estate and Middle Market Lending businesses to focus on core housing finance operations, allowing for more concentrated capital deployment [8]. Liquidity and Capital Distribution - Annaly maintains a strong liquidity position with $9.4 billion in total assets available for financing, including $6.1 billion in cash and unencumbered Agency MBS [10]. - The company has a current dividend yield of 12.14%, having increased its quarterly cash dividend by 7.7% to 70 cents per share in March 2025 [12]. Market Performance - Annaly's shares have increased by 11.8% over the past six months, outperforming the industry average of 5.7% [20]. - The stock is currently trading at a forward 12-month price-to-tangible book (P/TB) multiple of 1.12X, which is higher than the industry average of 1.05X [23].