Market value: $12.1 billion
Dividend yield: 11.4%
Mortgage REITs are not known for their stable dividends due to their sensitivity to interest rate fluctuations, and Annaly Capital Management’s double-digit yield should certainly be approached with caution.
However, as the largest mREIT in the country, Annaly is arguably the best house in a bad neighborhood. The firm essentially makes money by borrowing at short-term interest rates and using those proceeds to buy longer-term, higher-yielding assets – primarily residential and commercial mortgage-backed securities.
Annaly uses a hefty amount of financial leverage to magnify the profits of its strategy and support its generous dividend. Because of its significant scale, NLY also enjoys lower operating expenses than its peers as a percentage of its earnings.
Even still, Annaly’s dividend has been highly volatile over the past two decades. But the company did increase its payout each year during the financial crisis. And more impressively, NLY’s stock was roughly flat while the S&P 500 index lost more than half its value during the 2007-09 market crash.
Annaly’s borrowing costs plummeted as rates tumbled during this time, but its higher-yielding investments continued providing their fixed-interest payments, resulting in solid net interest margins.
It takes a strong stomach to consider a stock like this, and the dividend payment will vary over time. But Annaly has some qualities that could appeal to more aggressive income investors.
For more on this sector, check out Simply Safe Dividends’ guide to investing in REITs.
SEE ALSO: The 15 Best REITs for Retirement Income