Don’t Be Fooled By Annaly’s High Dividend Yield.

Bonds outstanding: $600 million, and there are some preferred shares.


What the company does – Formerly known as Annaly Mortgage Management, Annaly Capital Management is a real estate investment trust which invests in mortgage pass-through certificates, collateralized mortgage obligations, and other mortgage-backed securities. Interest and principal payments on the firm’s investments are guaranteed by government-sponsored agencies including Fannie Mae, Freddie Mac, and Ginnie Mae. Annaly commenced operations in 1997 and is based in New York City.

DIVIDEND RECORD – Annaly has been cutting it dividend since its peak in 4Q 2009.  This ship is sinking.

Dividend: $0.57 quarterly

Dividend yield: 13.3% ($2.28 annual dividend/$17.12 share price)

Dividend payout ratio: 118% ($2.28 annual dividend/$1.92 recent Google Finance EPS) –OR- 300% using the six year average adjusted earnings ($2.28/$0.76)


EARNING POWER – $0.76 per share @ 970.08 million shares

(Earnings adjusted for changes in capitalization; Annaly issues stock all the time to stay afloat)


Net income


Adjusted EPS



$74 M

168 M




$393 M

306 M




$325 M

507 M




$1,943 M

553 M




$1,249 M

625 M


2011 (est)


$422.53 M

970.08 M



Net income


Adjusted EPS

2011 Q1


$696 M

791 M


2011 Q2


$117 M

828 M


2011 Q3


($926 M)

949 M


2011 Q4 (est)


$535.53 M

970.08 M


2011 total (est)


$422.53 M

970.08 M


Six year average adjusted earnings per share is $0.76

Consider contrarian buying below $6.08 (8 times average adjusted EPS)

Consider value buying below $9.12 (12 times average adjusted EPS)

Consider speculative selling above $15.20 (20 times average adjusted EPS)

Annaly Capital Management is currently trading at 22.5 times average adjusted EPS.  This stock is speculatively priced.

BALANCE SHEET – Toxic assets falsely valued at full face value and a mountain of short term liabilities that are real.  The company’s equinity can disappear in moments.  The company possesses no plant, property, or equipment used to produce goods.  That means no real assets; just deficit spending government non-guaranteed mortgage backed securities.


Book value per share:  $16.40 ($15,910 M/ 970.08 M shares), but the equity is a phony number because the assets are artificially valued higher than the free market would price them.

Price to book value ratio: 1.04 (under 1.0 is good)

Current ratio: 0.04 (over 2.0 is good) ($4.311 B in current assets / $97.165 B in current liabilities)

Quick ratio: (over 1.0 is good) ($3.474 B in cash / $97.165 in current liabilities)

Debt to equity ratio: 6.14 (lower is better) (total liabilities / total equity)

Percentage of assets in plant, property, and equipment: 0%

CONCLUSION – Never own a bank or financial stock.  Annaly Capital Management suffers from all the same ills of American Capital Agency Corp. (AGNC).

They are borrowed short and lent long.  They are susceptible to bankruptcy if the financial markets seize up again like in 2008.  Their assets are toxic, but are carried at full face value even though the market would never buy them at such prices if the company where to be liquidated.  Stay away from the siren song of the high dividend yield.  Besides, the shares are speculatively priced based on earnings and book value.  If I can’t convince you to stay away from financial stocks, then at least buy under $9.00.


DISCLOSURE – I don’t own Annaly Capital Management, Inc. (NLY) and I never will.

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Published in: on February 7, 2012 at 2:29 pm  Leave a Comment  

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