Annaly Capital Management NLY has hiked its quarterly dividend for the first time in the past five years. 

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 30, 2025, to shareholders of record as of March 31.

This move reflects confidence in NLY’s cash flow and growth prospects. Its current dividend yield of 11.93% remains higher than the industry’s average of 10.67%. NLY’s payout ratio is 96% of its earnings.

Annaly Capital Management Inc Dividend Yield (TTM)

Its peer's AGNC Investment AGNC has a dividend yield  of 13.90%, while AG Mortgage Investment Trust MITT has dividend yield of 9.76%.

Annaly is focused on improving its liquidity and reducing leverage to support capital distribution activities. 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. This provides a substantial competitive edge in today's market.

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’s recent dividend hike and impressive dividend yield may entice many investors to buy the stock. Let us delve into other factors at play to know whether to buy the stock or not.

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 area.

In sync with this, in 2022, Annaly 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, potentially 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.

NLY to Benefit From Favorable Agency MBS Outlook

The company’s investment strategy involves traditional Agency MBSs, which provide downside protection and investments in more non-agency and credit-focused asset classes that enhance returns.

The fundamental outlook for fixed income, particularly agency MBS assets, has shown signs of improvement lately. NLY’s management is optimistic about the 2025 MBS outlook, given favorable dynamics across each of its businesses.

During the fourth quarter 2024 earnings conference call, management noted that Agency MBS continued to provide attractive returns with an improved supply and demand picture, decreasing financing costs and a steeper yield curve offering additional sector tailwinds. 

Against this improved backdrop, NLY generated an economic return of 11.9% in 2024, driven by the company’s compelling monthly dividend. Its 2024 performance shows that it can generate robust investment returns when Agency MBS spreads are wide and steady.

Hence, with $70.6 billion of its investment portfolio comprising highly liquid Agency MBSs (as of Dec. 31, 2024), Annaly is expected to enjoy attractive risk-adjusted returns in the fixed-income markets.

Annaly’s Strong Price Performance

Over the past six months, the NLY stock jumped 14.7% compared with the industry’s rise of just 1.4%. In the meantime, its peer's AGNC rallied 7.5%, while MITT rose 8.2%.

Price Performance

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Should You Buy NLY Stock Now?

Annaly’s performance is highly influenced by interest rate changes. The Federal Reserve’s monetary policy has a big impact on the company's performance.

The Fed lowered interest rates by 100 basis points in 2024. However, the Fed has extended a pause that has been in place since January 2025 and kept the interest rate steady in its March 2025 meeting. With this, the Fed has maintained a prior prediction of two rate cuts this year.

Given market Volatility, mortgage rates are still relatively high. Per a Freddie Mac report, the average rate on a 30-year fixed-rate mortgage was 6.65% as of March 13, 2025, up from 6.63% in the previous week.

With rising mortgage rates, Annaly might witness a decline in purchase originations and refinancing activities. This will lead to a decline in its book value in the coming period. 

Nonetheless, 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.

Sales Estimates

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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 7.77X, lower than the industry average of 8.99X.

Price-to-Earnings

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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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AGNC Investment Corp. (AGNC) : Free Stock Analysis Report

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

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