Insights

Why Annaly Capital’s Stock Price Rose 16.4% in July

What happened

The stock market bounced back in a big way in July with its best month since November 2020. Annaly Capital Management (NYSE: NLY) was among the winners as its stock price ended the month 16.4% higher, according to S&P Global Market Intelligence

That outpaced the S&P 500, which gained 9.1% last month, and the Nasdaq Composite, which was up 12.4%. However, Annaly Capital was down about 15% year to date as of the close of trading Wednesday.

So what

As a mortgage real estate investment trust (REIT), Annaly Capital invests in mortgages and mortgage-backed securities and earns revenue on the interest payments. Most of its portfolio is in agency mortgage-backed securities — those that are backed by the federal government.

The catalyst for much of Annaly’s spike came on July 27 when it released its second-quarter report. It topped analysts’ consensus estimates with net income of $893 million, or $0.55 per share, up from a net loss a year ago. Its non-GAAP earnings available for distribution per average common share — which is a preferred profitability metric for the REIT — was $0.30. That beat analysts’ consensus estimate of $0.25.

While Annaly’s book value per share dropped to $5.90 from $8.37 in Q2 2021, its net interest margin rose to 2.64% from 1.66% a year ago. Also, the average yield on interest earning assets jumped to 3.58% from 1.97% a year ago.

In addition, Annaly was able to maintain its $0.22 quarterly dividend, which at the current share price gives it an astronomical yield of 14.9%. While REITs are required by law to distribute 90% of their earnings as dividends, 14.9% is up from 12.5% the previous quarter and 9.91% in the second quarter of 2021. In a market where dividend stocks have become more popular, the dividend and yield may have attracted some investors.

Now what

While Annaly got a bump in July, the near-term outlook for the housing market is not great, with interest rates rising and a recession apparently looming. The company will be looking out for more clarity from the Federal Open Market Committee on interest rates and how they are impacting inflation — and the housing market.

Chief Financial Officer Serena Wolfe said on the earnings call that she expects earnings to moderate over the second half but to be sufficient for the REIT to maintain its current dividend. It may be worth a look as an income stock, but don’t expect much capital appreciation in the near term. 

Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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