How to Approach NLY Stock as Mortgage Rates Surge to a 7-Month High?

Core Viewpoint - Annaly Capital Management's performance is closely linked to mortgage rates and Federal Reserve policy, with current trends indicating challenges due to rising mortgage rates and economic uncertainty [1]. Mortgage Rate Trends - Mortgage rates have recently increased, with the 30-year fixed mortgage rate reaching 6.38% as of March 26, 2026, up from 6.22% the previous week and down from 6.65% a year ago [2]. - The rise in mortgage rates is attributed to concerns over inflation and geopolitical tensions, particularly in the Middle East, which have kept Treasury yields elevated [3]. Impact on mREITs - Higher mortgage rates, combined with affordability issues and economic uncertainty, are pushing potential homebuyers away, creating operational challenges for mREITs like Annaly, AGNC Investment Corporation, and Starwood Property Trust [3]. - The Federal Reserve's decision to maintain steady interest rates in 2026, despite previous cuts, is expected to increase earnings pressure on highly leveraged mREITs, potentially leading to reduced dividends [4]. Performance Factors for Annaly - Annaly's diversified investment platform includes Agency mortgage-backed securities (MBS), residential credit, and mortgage servicing rights (MSR), which aids in balancing income generation and risk management [6]. - As of December 31, 2025, Annaly's investment portfolio was valued at $104.7 billion, with $92.9 billion in highly liquid Agency MBS, which are primarily backed by government-sponsored enterprises [7]. - The company is expanding its MSR platform through a partnership with PennyMac Financial Services, enhancing its operational efficiency [8]. Financial Position and Dividends - 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][11]. - The company has a current dividend yield of 13.5%, having increased its quarterly cash dividend by 7.7% to 70 cents per share in March 2025 [12]. Sales and Earnings Estimates - The Zacks Consensus Estimate for Annaly's 2026 sales indicates a year-over-year growth of 74%, with expected sales of $1.98 billion [15]. - Earnings estimates for 2026 suggest a year-over-year growth of 1.4%, while a slight decline is anticipated for 2027 [18]. Stock Performance and Valuation - Annaly's shares have gained 2.3% over the past year, outperforming the industry's decline of 6.5% [21]. - The stock is currently trading at a forward 12-month price-to-tangible book (P/TB) multiple of 1.01X, which is higher than the industry average of 0.91X [23].