Is Annaly Capital Management Stock a Buy?

Annaly Capital Management (NYSE: NLY) is offering investors a massive 16% dividend yield today. Normally that should throw up a warning flag that there's something amiss. However, the real estate investment trust's (REIT's) yield has been 10% or higher for most of the past decade, so a fat yield isn't out of the ordinary. Even so, you shouldn't take too much comfort in that bit of information -- you need to know a lot more than just yield stats before you buy Annaly.

Annaly Capital Management is a mortgage real estate investment trust. It does not own physical property, just mortgages on properties. That's a lot different from a traditional REIT, which at least has the value of the properties it owns to fall back on in a worst-case scenario. If someone stops paying Annaly, it would have to go through an often-lengthy legal process (foreclosure) to actually get hold of the property it's helping to finance. Normally this legal backstop is not too big a deal, but during economically difficult periods it becomes a much more important factor to consider.

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Source Fool.com