Over the past year, Annaly Capital Management NLY has demonstrated resilience in the face of economic uncertainties. The stock has gained 11.5% in the past year against the industry’s decline of 3.8%. NLY has also outperformed its peers AGNC Investment AGNC and Ellington Credit Company EARN over the same time frame. AGNC Investment has grown 7.2% while Ellington Credit Company fell 19%.

Price Performance

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Annaly is a mortgage real estate investment trust that primarily owns, manages and finances a portfolio of real estate-related investment securities. The company's diversified approach to capital allocation has been crucial in its ability to navigate market fluctuations and maintain a competitive edge.

Let us delve deeper and analyze other factors to determine the investment worthiness of the NLY stock.

NLY’s Strong Liquidity Position & Capital Distribution

The company is focused on improving its liquidity and reducing leverage. Till the end of the fourth quarter of 2024, the company enjoyed a strong liquidity position. Annaly had an unencumbered asset portfolio, aggregating $5.8 billion, which can readily provide liquidity in times of adverse market conditions.

Annaly's strong liquidity position provides a substantial competitive edge in today's market. Strong liquidity enabled the company to raise its dividend distribution and respond rapidly to investment opportunities as and when required.

On March 13, 2025, Annaly announced a cash dividend of 70 cents per share for the first quarter of 2025, marking a 7.7% hike from the prior payout. The dividend will be paid out on April 9, 2025, to shareholders of record as of March 31.

Its current dividend yield of 14.87% remains higher than the industry’s average of 11.30%. NLY’s payout ratio is 96% of its earnings.

Annaly Capital Management Inc Dividend Yield (TTM)

While its peers, such as AGNC Investment and Ellington Credit Company, provide higher yields (16.04% and 20.25%, respectively), NLY’s payout appears more sustainable, backed by a healthy portfolio and consistent earnings.

Apart from dividends, Annaly has a share repurchase plan in place. On Dec. 31, 2024, the company’s board of directors authorized a common share repurchase program, which will expire on Dec. 31, 2029. Under the program, the company may repurchase up to $1.5 billion of its outstanding shares of common stock.

Annaly to Gain From Decline in Mortgage Rates

The Federal Reserve has lowered the interest rates by 100 basis points in 2024 and has kept rates steady since then. However, the central bank hinted at two rate cuts in 2025. Given this, mortgage rates are easing. Per a Freddie Mac report, the average rate on a 30-year fixed-rate mortgage was 6.64% as of April 3, 2025, down from 6.65% in the previous week and 6.82% in the same week a year ago.

Given the decline in mortgage rates, purchase originations are likely to improve in the upcoming period. Refinance volumes are also expected to rise due to a gradual fall in mortgage rates.

With improving purchase originations and refinancing activities, NLY will likely witness book value improvement in the coming period as spreads in the Agency market tighten, driving asset prices. This should also boost net interest spread, improving the portfolio's overall yield. This is expected to support Annaly’s financials in the upcoming period.

NLY to Benefit From Portfolio Diversification

One of Annaly's main advantages is its well-diversified capital allocation approach. The company's investment portfolio includes residential credit, mortgage servicing rights (MSR), and agency mortgage-backed securities (MBS). This comprehensive strategy aims to lower volatility and sensitivity to interest rate changes while simultaneously generating appealing risk-adjusted returns. As of Dec. 31, 2024, its investment portfolio aggregated $98.2 billion.

Annaly's diversified investment strategy will likely be a key contributor to long-term growth and stability. By diversifying its investments across the mortgage market, the company is better positioned to capitalize on opportunities as they occur in multiple areas while limiting the risks associated with overexposure to any particular location.

In sync with this, in 2022, NLY sold its Middle Market Lending portfolio and exited its commercial real estate business. Through these, the company was able to enhance capabilities across its core housing finance strategy and allocate capital to residential credit businesses, the MSR platform, and Agency MBS. NLY is also focusing on improving its capabilities by acquiring newly originated MSRs from its partner network, which will continue to provide a strong advantage in expanding its MSR business.

The inclusion of MSRs in the portfolio is also notable because these assets tend to increase in value as interest rates rise, offsetting reductions in the value of agency MBS. This hedging impact may produce more consistent returns over time and enable Annaly to perform well in a scenario of interest rate change.

Should You Buy NLY Stock Now?

A strong liquidity position allows the company to maintain its dividend policy and take advantage of market difficulties to acquire assets at attractive valuations. Also, its diversified investment strategy could be a key contributor to long-term growth and stability, supporting its financials.

Earnings Estimates

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The company’s earnings have been revised upward for 2025 and 2026 over the past 30 days, given its solid growth trajectory and favorable outlook.

Estimates Revision Trend

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Find the latest earnings estimates and surprises on Zacks Earnings Calendar.

From a valuation standpoint, Annaly appears inexpensive relative to the industry. The company is currently trading at a discount with a forward 12-month price-to-earnings (P/E) F12M multiple of 6.67X, lower than the industry average of 7.67X. Annaly peers AGNC Investment and Ellington Credit Company forward 12-month price-to-earnings of 5.61X and 4.14X, respectively.

Price-to-Earnings F12M

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Hence, investors can consider investing in the NLY stock at its current level to earn higher dividends and generate healthy long-term returns.

Annaly currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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