I talked about Annaly (NLY) many times in my blogs, e.g. here and here. And I have held quite a big position with it. I'm so convinced that this is one of the best income players with about 14% of field. In the past years or so, NLY has not disappointed me. I would have just earned near zero interests if I put my money simply in the bank. Last week, NLY plummeted over 3% following its earning report. It did not meet the street's estimate and earning was short of expectation.
There are two key elements for NLY to be able to offer its extremely high yield: low interest rate and high leverage. The current zero interest policy is super ideal for NLY and that's why it can continue to maintain its high yield. Since all the mortgages invested by NLY are government-guaranteed, it can also afford to use very high leverage, often in the range of 30 to 50 times. However, NLY just announced that it has started to decrease its leverage due to the ever increasingly unstable financial world and the regulatory environment. Reducing leverage means less revenue and accordingly less yield. Investors don't like that, so they dumped its shares. However, to me, what NLY is doing is making it safer and more secure. Maybe the yield may come down a bit but I feel more comfortable with NLY. Actually my bigger portion of NLY position is not about its yield, but an indirect way to earn my income as long as NLY does not drop all the way down below $15. Therefore, I will not only continue to hold my NLY shares, I may also increase my position if there is any panic selling in the next few weeks along with the overall market correction, which is something I'm expecting.
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