Annaly Capital Management: Buy, Sell, or Hold?
If you like dividend stocks you will probably dislike Annaly Capital Management (NYSE: NLY), even though it has a huge 13%+ dividend yield. But that doesn't mean that the mortgage real estate investment trust (REIT) is a bad investment, just that it lacks some of the key attributes that make dividend stocks attractive (beyond a big yield, that is). Here's who should buy Annaly and who shouldn't.
Annaly Capital is a mortgage REIT, which is a unique subset of the REIT sector. Property-owning REITs do similar things to what you would do if you owned a rental property, just at an institutional level, usually generating a reliable stream of income to support dividends. Mortgage REITs, on the other hand, usually buy mortgages that have been pooled into bond-like securities. This is very different from owning physical property, and the company is probably best looked at as a mutual fund-like investment focused on the mortgage sector.
That said, Annaly is a good way to get direct exposure to mortgage securities. REITs like Annaly usually use leverage, as well, in an attempt to enhance returns. In that way, it is like mortgage exposure on steroids. There are investors who are actually looking for just such exposure, but they tend to be institutional investors that use asset allocation models and focus on total return and not income. total return, importantly, assumes the reinvestment of dividends.
Source Fool.com
