Annaly Dividends Should Benefit From The Current Interest Rate Environment

In this article, I analyze the historical dividends of a specific mREIT - Annaly Capital Management (NLY) - to quantify how Treasury interest rates affected them over the course of 15 years, and estimate what can be expected in the near future. The recent loss in the BV of most mREITs made some authors question the viability of their business model, and a few even suggested impending bankruptcies.

Historically, two important predictors of NLY's quarterly dividend have been the Treasury yield spread (20-year minus 3-month) and the 3-month interest rate: lower 3-month rates and, especially, higher yield spread translate within a couple of quarters, at most, into a higher dividend. This dividend was increased, on average, by 4.6 cents in the 3 months following a quarterly raise in the yield spread larger than 0.75%. With the latest dividend of $0.40, that represents an 11.5% raise. At the current share price of NLY ($12.57 on June 28, 2013), I believe that a lot of bad news is already priced in.

Source: Seeking Alpha

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