NLY Having a Run!

[Kerim]

Ok, ok. I know that many REITs are not traditionally considered dividend growth stocks. That is true of Annaly Capital Management (NLY), which actually has cut its dividend in recent quarters. Nonetheless, many DG investors (including me), include some REITs in their portfolios to juice returns a bit (among other reasons). I've owned shares of NLY since March of 2012.

I wanted to post about NLY for two reasons. First, new member aagha mentioned in another thread that it is a stock he follows. And since we've got so few members at this early stage, I want to do everything I can to keep them interested! Second, the stock has really been on a tear the past few days. (Though sadly not yet back to my average price per share. )

Any thoughts as to what's going on? They recently announced the next dividend payout, and perhaps folks were heartened to learn that they are maintaining (not cutting) the amount. Coupled with a projected stable interest rate environment for the foreseeable future, maybe that's getting people comfortable. Of course, a better than 11 percent dividend yield doesn't hurt!

[aagha]

I know it's not a growth stock, but this baby is returning over 12%, right? Am I doing my math right?

[Kerim]

Close enough; just over 11 percent, by my count. 45 cents per quarter is $1.80 per year divided by today's close of $15.91 is about 11.30 percent. And 3 months ago the share price was well under $15.00.

As I mentioned over here, I'm still underwater on share price for NLY, but with reinvesting those huge dividends, I'm doing just fine!

[TomK]

Looks like your run is in a bit of trouble. Good day today, but rough week for NLY.

[Kerim]

Trouble indeed. Now it is below $14.00. Groan.

I'm not really worried -- my thesis on this one still holds and I'm going to keep holding the stock. By value, NLY is less than 4 percent of my portfolio, but it accounts for a little over 11 percent of my dividend stream. It is higher risk than most items in my portfolio, but that is exactly why it is in there -- to juice my returns. But it does take an oversize chunk of my attention. I definitely do not agonize over my JNJ, which is more than 12 of my portfolio by value.

I think the real reason that NLY bugs me is that its current price is solidly below my average price per share. (Luckily I have only 2 stocks in that bucket.) I don't mind price swings nearly so much when I've got a nice low entry price.

[Kerim]

NLY, along with the other mREITs, is getting killed today. The current price is way below what I bought at, and I am sorely tempted to buy more to average down my price. But this is already on the "speculative/high yield" end of my portfolio and I'm not inclined to add a bunch more as a long-term holding, and so -- for the moment -- I am going to hold off. I did buy a few contracts of the October 2013 $11.00 calls, though, on the notion that this is a panicky sell off and there will be some kid of a recovery in the short term. Wish me luck!

[aagha]

What's interesting about what's happening to NLY (graph) is that it seems to be reacting OPPOSITE to the Case Shiller Index (graphs). Case-shiller is indicative of what's happening to housing prices across the country and NLY is a complex REIT, but is there a connection? As housing prices in the country go up, REIT's go down? Why?

[Lost Fish]

Having invested in REITs before, I'll just add my quick take: this is not your ordinary REIT. As Kerim noted, this is an mREIT which deals mainly with a portfolio of mortgages (thus the "m"). In some ways this is the perfect vehicle for those who felt left out after TARP and wanted some window into owning mortgage-backed securities. Unfortunately they are very interest-rate sensitive and the latest speculation on interest rates is that if the economy improves the Fed will increase rates which will KILL investments of this type. That's my understanding on why ordinary REITs are holding steady in comparison to these kind of REITs which are more interest-rate volatile (but also have high dividend yields).

So yeah, great dividends and, if they can weather the storm, maybe not a bad bet - for that reason alone.