Why Annaly Capital’s share price rose 16.4% in July

What happened

The stock market rebounded strongly in July with its best month since November 2020. Annaly Capital Management (NLY 0.45%) was among the winners as its stock price ended the month up 16.4%, according to S&P Global Market Intelligence.

who preceded the S&P500which gained 9.1% last month, and the Nasdaq Compound, up 12.4%. However, Annaly Capital was down about 15% year-to-date as of Wednesday’s market close.

So what

As a mortgage real estate investment trust (REIT), Annaly Capital invests in mortgages and mortgage-backed securities and generates income on interest payments. The bulk of its portfolio is made up of agency mortgage-backed securities, those guaranteed by the federal government.

The catalyst for much of Annaly’s spike came on July 27 when it released its second quarter report. It beat analysts’ consensus estimates with net income of $893 million, or $0.55 per share, versus a net loss a year ago. Its non-GAAP earnings available for distribution per average common share — which is a preferred measure of profitability for the REIT — were $0.30. That topped analysts’ consensus estimate of $0.25.

While Annaly’s book value per share fell to $5.90 from $8.37 in the second quarter of 2021, its net interest margin increased to 2.64% from 1.66% a year ago. . Additionally, the average return on interest-earning assets rose to 3.58% from 1.97% a year ago.

Additionally, Annaly was able to maintain its quarterly dividend of $0.22, which at the current share price gives it an astronomical yield of 14.9%. While REITs are required by law to distribute 90% of their earnings as dividends, 14.9% is up from 12.5% ​​in the previous quarter and 9.91% in the second quarter of 2021. In a market where dividend-paying stocks have become more popular, the dividend and yield may have attracted some investors.

Now what

While Annaly saw a bump in July, the short-term outlook for the housing market is not great, with interest rates rising and a recession seemingly imminent. The company will seek more clarity from the Federal Open Market Committee on interest rates and their impact on inflation — and the housing market.

Chief Financial Officer Serena Wolfe said on the earnings call that she expects earnings to decline in the second half, but be enough for the REIT to maintain its current dividend. It may be worth considering as an income stock, but don’t expect much capital appreciation in the short term.

Dave Kovaleski has no position in the stocks mentioned. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.

Sallie R. Loera