Annaly Capital's Book Value Tells the Story Its Dividend Yield Doesn't

Annaly Capital (NYSE: NLY) is a behemoth among mortgage-focused real estate investment trusts (REITs). It has the largest market cap in the sector and is 12 times the size of its average peer.

Almost everything about Annaly Capital is big, including its dividend yield, which at around 13% is more than 10 times higher than the S&P 500's 1.1% yield. A high dividend yield typically suggests that a stock trades at a discount. However, Annaly's book value tells a different story.

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Digging into Annaly's book value

Annaly Capital ended the first quarter with a total investment portfolio of $106.7 billion, up $2 billion from the end of last year. Most of its portfolio -- $92.2 billion -- was Agency mortgage-backed securities (MBS; pools of residential mortgages guaranteed against credit losses by government agencies such as Fannie Mae). The leading mortgage REIT also had $10.3 billion in residential credit investments (non-Agency residential mortgages) and $4.2 billion of mortgage servicing rights (MSR; the obligation to service residential loans for a fixed servicing fee). While its Agency MBS portfolio declined slightly in the quarter, Annaly grew its residential credit and MSR portfolios by 30% and 9%, respectively.

The REIT has invested $16.3 billion of shareholder capital in its portfolio, with the remaining funded by leverage. After subtracting its liabilities from its assets, Annaly's book value was $19.82 per share at the end of the first quarter. That's down from $20.21 per share at the end of last year. Annaly's book value is below its recent share price of more than $21.50 per share. That suggests investors are willing to pay a little more for Annaly because of the quality of its portfolio and operations.

What this means for the dividend's sustainability

Annaly's stock has traded at a premium to its book value over the past year. That has enabled the REIT to raise capital by selling shares and deploy it into accretive investments. For example, it raised $509 million in capital during the first quarter. CEO David Finkelstein noted on the first quarter conference call that the "capital raise was specifically related to Resi Credit and MSR in real time." He stated that "we felt it was highly productive to raise capital, and we did so." It deployed that capital into a couple of billion dollars of residential credit investments and nearly $400 million of MSR. By deliberately selling stock above book value and earmarking it for opportunistic investments, the company was able to grow its long-term earnings capacity.

The REIT's earnings available for distribution (EAD) came in at $0.76 per share during the quarter, well in excess of its $0.70 per share dividend. EAD has grown over the past year, from $0.72 per share in the first quarter of 2025 to $0.74 per share by the end of the year. The rise in the REIT's EAD allowed it to raise its dividend by nearly 8% early last year. That marked a notable turnaround for a company that had cut its payout several times previously.

Annaly might not be cheap, but the dividend looks safe

Annaly currently trades at a premium to its book value. However, that benefits the REIT by allowing it to raise capital to make accretive investments, thereby growing its EAD. With its EAD rising, its big-time dividend is growing more sustainable.

Matt DiLallo 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.