3 Reasons to Buy Annaly Capital Stock Like There's No Tomorrow

Annaly Capital's (NYSE: NLY) stock likely pops up on the stock screens run by dividend investors thanks to its huge 12% dividend yield. The lofty yield, however, isn't a good reason to buy this mortgage real estate investment trust (mREIT). In fact, it is most likely a bad reason, because the dividend has been highly volatile over time, fluctuating in dramatic fashion both up and down. However, here are three reasons some investors might want to buy Annaly Capital.

1. Annaly just increased its dividend

History suggests that Annaly isn't a a reliable dividend stock. But dividends are a signaling mechanism used by a company and its board of directors. Dividend increases, such as the one Annaly made at the start of 2025, indicate that the company is performing well, at least for now.

NLY Dividend data by YCharts

Given the volatility of Annaly's dividend over time, you have to take that dividend increase with a grain of salt. But the company has sustained it throughout 2025. It follows a reverse stock split, which was essentially used to reset the business to some degree. Notably, the company's earnings available for distribution covered the new dividend in each of the first three quarters of the year. There's not much room for a dividend increase, but right now the dividend and the business look like they are, indeed, on solid ground.

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2. Falling interest rates could be good news for Annaly

A key part of the positive story for Annaly is that the Federal Reserve has been lowering interest rates. This is a direct benefit for Annaly because it uses leverage to increase its capacity to purchase mortgage securities. Simply put, lower rates should lead to lower interest expenses. That's good news for the company's earnings profile.

However, there's another issue to consider here. The housing market is in a state of hibernation right now. Home prices are high, and interest rates are no longer as low as they once were. That has made it difficult for many people to buy a home. Lower rates haven't yet unlocked the housing market, but if rates continue to decline, that could change. A healthier housing market would be a huge positive for the mortgage REIT's business.

3. Annaly has done a good job at hitting its target

Annaly's high yield makes it appear to be a dividend stock. The dividend is volatile, however, so it may not be a good fit for dividend investors. And yet the company has done a good job of achieving its objective. The key is that the objective isn't reliable income; it is total return. Total return requires that dividends be reinvested, not spent on living expenses.

NLY Total Return Price data by YCharts

As the chart above highlights, Annaly's total return is actually higher than that of the broader market since its initial public offering (IPO). Interestingly, Annaly's performance hasn't tracked the broader market, which means it could add diversification to a portfolio built around an asset allocation model.

Know what you are buying with Annaly Capital

Annaly Capital is an investment that requires a thorough understanding before purchase. If you don't conduct a thorough review, you may purchase it for the wrong reasons and end up disappointed. The risk here is the high yield, which may make you believe it is a reliable dividend stock. That's probably not the case. However, there are still good reasons for certain investors to be interested in the stock. The key is to determine whether Annaly's total return focus aligns with your personal investment goals.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.