This More Than 14%-Yielding Dividend Stock is Surprisingly Raising Its Already Monster Payout
Key Points
Annaly Capital Management recently increased its dividend payment.
That increase followed a series of dividend cuts.
The REIT is currently earning attractive returns on mortgage investments.
10 stocks we like better than Annaly Capital Management ›
Annaly Capital Management (NYSE: NLY) pays a monster dividend. The real estate investment trust's (REIT) yield is currently over 14%. That's a massive 10 times higher than the S&P 500.
More often than not, dividends with yields over 10% seem to be screaming that a cut is forthcoming. However, that's not the case with this mortgage REIT's payout. Instead, the company recently gave investors a surprise dividend increase. Here's a look at whether Annaly is a solid option for investors seeking a big-time income stream.
Image source: Getty Images.
Bouncing back
Annaly Capital Management has a three-pronged investment strategy:
Agency MBS: Annaly invests in pools of residential mortgages guaranteed by government agencies such as Freddie Mac and Fannie Mae .
Mortgage servicing rights: It invests in MSRs, which provide the right to service residential loans in exchange for a portion of the interest payments.
Residential credit: The REIT invests in non-agency residential mortgage assets. It's a leader in investing in prime jumbo mortgages.
The company uses leverage to invest in additional mortgages. It makes money on the spread between the interest it pays and the income earned by its investment portfolio.
Annaly's investment spread was wider during the first quarter. That enabled the mortgage REIT to generate $0.72 per share of earnings available for distribution (EAD), its second straight quarter at that level. As the following table shows, the company's earnings have started to bounce back after declining in recent years:
Data source: Annaly Capital Management.
That improvement in its earnings enabled the company to raise its quarterly dividend from $0.65 to $0.70 per share. It's a partial reversal of the company's dividend cut in early 2023, when it slashed its payout from $0.88 to $0.65 per share. That cut was one of many the company has made over the years:
Where will the dividend go next?
Annaly's dividend history shows it tends to rise and fall with its EAD. While EAD had declined over the past couple of years, it stabilized and started rising during the last few quarters. That's due to a combination of investments to grow parts of its portfolio and higher returns for its mortgage investments.
In early 2023, Annaly had an $85.5 billion investment portfolio consisting of:
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