NLY Stock: 3 Reasons to Be Bullish on This 9.7% High Dividend Yield
Collect a 9.7% High Dividend Yield From NLY Stock
With any high-dividend-paying stock, there are three important areas to look at before deploying any capital: its dividend payout, its profitability, and the company`s valuation.
This is no different for Annaly Capital Management, Inc. (NYSE:NLY), a mortgage-based real estate investment trust; at least 75% of its revenue comes from mortgage-related investments. The type of investments Annaly is involved in include resident credit, commercial real estate loans, and participation in debt financing.
Let’s take a deeper look into the company and see if NLY stock deserves a capital investment or not.
Earn a High Dividend Yield
The first financial metric we’ll look at is the dividend. Paid out every quarter, NLY stock’s dividend is currently $1.20. It also features an impressive yield of 9.7%, based on the current stock price of $12.32. Compare that to the S&P 500 Index, one of the benchmark indices, has a current yield of only 1.9%. This means that NLY stock would pay investors a greater income over time.
Profitability and Management Effectiveness
The next important aspect is the company’s profitability. Profitability is determined by the business’ margins, namely the gross, operating, and profit margins. To understand where a company stands in regards to these margins, it is best to compare it to the industry average, since competitors have similar business models and are influenced by the same external factors.
For NLY stock all the margin ratio are above the industry average. For example, the profit margin for Annaly is 75%, meaning that from each dollar of revenue for Annaly, there is $0.75 left after accounting for business costs. Meanwhile, the industry has an average of 23%, or $0.23. This indicates that Annaly’s heads have taken a more hands-on approach to managing the business.
Determining if a company is undervalued, overvalued, or fairly valued uses the price-to-earnings (P/E) ratio, which is again compared to the industry average. A lower ratio is better because it means there is more value in the company, whereas a P/E ratio over the industry average means the company is overvalued. As for an in-line ratio, it results in the company being fairly valued. With that mind, NLY stock is looking good, with a P/E ratio of 4.3 times. Compare this to the industry average of 13.6 times.
I believe that investors aren’t doing their due diligence with Annaly, simply following one another and bidding up the values of its competitors. Over the longer term, there is more risk involved with investing in an overvalued company. As more investors become aware of NLY stock’s discount valuation, it should begin to trade higher.
Final Thoughts About NLY Stock
All three of the above aspects of Annaly Capital Management, Inc. are not only related to one another, but prove the company’s bullishness. Until the market clues in on the cheap valuation, investors can potentially enjoy the dividend yield. Do your necessary research and you may find NLY stock to be a great investment opportunity for you.