Annaly Capital – Bargain or Falling Knife? Questions You Must Ask


A brief guide to the perplexed about Annaly Capital Management (NLY)

Annaly Capital Management (NLY) looks tempting. Its dividend is over 13%, it’s at decade lows, its chart appears to be bottoming, and tepid US economic data leads many to believe that the spike in rates from the Fed taper speculation is done.

Investors have noticed. It appeals to the yield seeker and bargain hunter in us all.

It seems that hardly a day passes without another article on NLY appearing on, often among the top 10 most widely read. Like Linn Energy (LINE) did a few months ago (when Barrons trashed it and sparked a massive debate and stream of articles pro and con on the MLP), it seems like it may be an ideal income play for those with some patience and risk tolerance. After all, NLY has been around for a long time and so in theory has the management skill to ride out the ongoing interest rate volatility that has pounded its share price.

However while markets do overreact, they generally don’t send stocks to decade lows without good reasons, and only a fool would fail to regard its junk-bond like dividend without suspicion.

It’s time to get some clarification on NLY. The Fed is widely expected to initiate tapering at its September 17-18 meeting. That fact alone might prompt investors to hold off on new positions or to lighten up to reduce risk of another rate scare-induced plunge. However NLY should declare its quarterly dividend towards the end of September, and no one who has been holding NLY wants to miss that.

Here are the key questions to answer in order to determine if whether NLY is a bargain or falling knife.

Here is a summary of the bullish arguments for NLY, and my questions about them.

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