The big draw for most investors with Annaly Capital (NYSE: NLY) is its massive 13.7% dividend yield. To put that yield into context, the S&P 500 index (SNPINDEX: ^GSPC) has a yield of just about 1%, and the average real estate investment trust (REIT) yields 3.6%. If you are trying to maximize the income your portfolio generates, it would be hard to say no to Annaly Capital's yield, but here's why you might want to anyway.
Annaly Capital is a mortgage REIT. It issues stock and debt, using the proceeds to buy mortgages pooled into bond-like securities. It also manages the collection of loan payments, known as mortgage servicing rights.
While mortgage servicing tends to provide a reliable income stream, owning mortgages is a more volatile business. Act 2 Could Be 15x Bigger. Most investors think they missed the AI boat because they didn't buy Nvidia in 2005.
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The mREIT's cost of capital fluctuates with interest rates and market conditions on Wall Street. Just looking at the stock's yield today is a snapshot. To fully understand the income you can expect over time, you need to look back at the history.
It's not nearly as compelling a story as you might hope, as the chart below highlights. The first thing to note is the purple line, which is Annaly's dividend. The dividend has been highly variable since the company's IPO.
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