Reasons Why Investors Should Avoid the High Yielding Dividend Stock of Annaly (NYSE:NLY) Capital Management
Annaly (NYSE:NLY) Capital management is one of the most high dividend yielding stock in the market with a current dividend pay rate of 10.6%. Business is all about risk, and there can be no business without the assumption of loss and risk, but what makes Annaly (NYSE:NLY) Capital Management unique and unlike any other capital stock is its high dividend yielding rate. It’s an important factor which the investors must take into account before making an investment or purchasing a stock knowing what they are getting into.
Here are the few reasons according to the financial analyst, Matt Frankel, the investors might want to avoid Annaly (NYSE:NLY) if they are not sure about the current interest rates and their trends. According to him,real estate mortgage trusts similar to Annaly (NYSE:NLY) can be a victim of interest rate volatility. He thinks that these companies can survive and prosper only if the interest rate moves with a gradual pace whether it increases or decreases.
According to him sudden changes in the interest rates will be very dangerous for them. According to him Annaly (NYSE:NLY) and similar companies make money from mortgage backed securities on which an agreed fixed amount of interest is paid for a particular amount of time. The borrowed money generates profit from the spread difference between the two intervals and if Annaly (NYSE:NLY) Management is paying a 2.5% interest and the short term fluctuates to 3% then it’s obvious how the company’s profits will be effected, negatively.
This is exactly what happened in 2013 when Annaly (NYSE:NLY)’s profits dropped dramatically because of the sudden fluctuations in the mortgage rates. Long story short mortgage real estate investment trusts works splendidly if the interest rates don’t fluctuate.But if you think the interest rates have a tendency to suddenly fluctuate in the near future then you probably should avoid Annaly (NYSE:NLY) Capital Management and other real estate investment trust businesses.
Now according to another analyst Patrick Morris,Annaly (NYSE:NLY) is an extremely high dividend yielding company, it may be attractive to others but not to him. The reason he gives is the characteristics of the business which include high risk probability. According to him,Annaly (NYSE:NLY) neither manufacture goods nor does it provides services.It’s a money lending company whose biggest flaw is its sudden fluctuating interest rate movements which are totally out of its grasp.
According to the third Analyst Jordan Wathen, in the long run the mortgage Real estate investment trusts businesses are only good at doing one thing: they blowup. He thinks that Real estate investment trusts since the 60’s have not been able to keep their rhythm with the market. He says if a person invested $2000 in 1970’s in the REIT sector, then the principal amount today would be worth less than $120.These businesses resembling Annaly (NYSE:NLY) are all working on educated guesseswhich is a highly uncertain business.