Don’t be too surprised if Annaly Capital Management reduces its eye-popping yield sooner or later.
Income-focused investors sometimes flock to real estate stocks for their typically hefty yields. With that in mind, you may be tempted to load up on Annaly Capital Management (NLY 1.36%) stock to take advantage of the company’s sizable quarterly distributions.
It’s important to know exactly how big those payouts will be, no doubt. At the same time, investors should consider their position sizing, as Annaly Capital Management stock may fluctuate and the company’s quarterly cash payouts might not be quite as dazzling in future.
Know what you own
First and foremost, investors should think about owning a piece of a company they really like and understand, rather than just chasing high dividend yields. After all, the distributions won’t be much of a consolation prize if the stock is highly volatile.
Knowing what you own is crucial, so you should know that Annaly Capital Management isn’t just any type of real estate company. It’s a mortgage real estate investment trust (REIT), which means that it’s highly sensitive to a complex web of factors like mortgage demand, repayment trends, delinquency rates, and interest rate changes.
Annaly Capital Management stock has been all over the place this year so far and has underperformed the S&P 500. So the stock may carry a high level of volatility risk.
What is Annaly Capital Management’s dividend payout?
Annaly Capital Management recently declared a second-quarter dividend of $0.65 per share, payable to shareholders of record on June 28. If Annaly Capital Management stock trades at around $20, then the annualized dividend of $2.60 would translate to a forward annual dividend yield of 13%.
Annaly Capital Management did turn a GAAP-measured quarterly profit in 2024’s first quarter. This doesn’t ensure a consistent dividend, though, as Annaly Capital Management has a history of distribution reductions.
Thus, unfavorable mortgage market changes could threaten Annaly Capital Management’s future payouts. Volatility may bring opportunity, but it doesn’t ensure safety for Annaly Capital Management’s income-focused shareholders.
David Moadel has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
