Focus of Article
The focus of this two-part article is to provide a very detailed analysis comparing NLY to all the mortgage real estate investment trust (mREIT) peers I currently cover. I am writing this two-part article due to the continued requests that such an analysis be specifically performed on NLY and some of the company's mREIT peers at periodic intervals. For readers who just want the summarized conclusions/results, I would suggest to scroll down to the "Conclusions Drawn" section at the bottom of each part of the article.
Part 1 of this article analyzed Annaly Capital Management, Inc.'s (NYSE:NLY) recent results and compared several of the company's metrics to 20 mortgage real estate investment trust (mREIT) peers. Part 1 also showed how NLY's book value ("BV") as of 9/30/2019 compared to the 20 other mREIT peers. Part 1 helps lead to a better understanding of the topics and analysis that will be discussed in Part 2. The link to Part 1's analysis is provided below (all readers should be able to access):
Annaly Capital's BV, Dividend, And Valuation Versus 20 mREIT Peers - Part 1 (Post Q3 2019 Earnings)
The focus of Part 2 of this article is to compare NLY's recent dividend per share rates, yield percentages, and several dividend sustainability metrics to 20 mREIT peers. This analysis will show recent past data with supporting documentation within Table 4 below. This article will also discuss NLY's dividend sustainability, which is partially based on the metrics outlined in Table 4. A more in-depth analysis of NLY's dividend sustainability will be provided in Table 5 below. This includes a discussion of NLY's dividend decrease of ($0.05) per common share which occurred during the second quarter of 2019.
By analyzing these metrics, one will better understand which mREIT generally has a safer dividend rate going forward versus other peers that generally have a higher risk for a dividend reduction. When both back testing and projecting the metrics within this analysis, the results have continued to be proven reliable. This is not the only data that should be examined to initiate a position within a particular stock/sector. However, I believe this analysis would be a good "starting-point" to begin a discussion on the topic. At the end of this article, there will be a conclusion regarding the following comparisons between NLY and the 20 mREIT peers: 1) Trailing 12-month ("TTM") yields based on a stock price as of 12/21/2018 and 12/20/2019 (for each respective time period, including annual dividend change); 2) annual forward yield based on a stock price as of 12/20/2019; and 3) annual forward yield based on BV as of 9/30/2019. I will also provide my current BUY, SELL, or HOLD recommendation, dividend per share rate projection for the first quarter of 2020, and price target on NLY. The REIT Forum subscribers received additional data within Table 5, along with dividend rate probabilities for all 21 mREIT companies I currently cover for the first quarter of 2020.
Side Note: I believe there are several different classifications when it comes to mREIT companies. For purposes of this article, I am focusing on four. For readers who are new to my articles or for existing readers who need a "refresher" on several different mREIT classifications, please see Part 1 of this article (link provided above).
Dividend Per Share Rates and Yield Percentages Analysis - Overview
Let us start this analysis by getting accustomed to the information provided in Table 4 below. This will be beneficial when comparing NLY to the 20 mREIT peers within this analysis.
Table 4 -Dividend Per Share Rates and Yield Percentages
(Source: Table created by me, obtaining historical stock prices from NASDAQ and each company's dividend per share rates from the SEC's EDGAR Database)
Using Table 4 above as a reference, the following information is provided (see each corresponding column): 1) Dividend per share rate for the third quarter of 2019 (for monthly dividend payers, the total monthly dividends during the quarter); 2) stock price as of 9/20/2019; 3) TTM dividend yield (dividend per share rate from the fourth quarter of 2018-third quarter of 2019); 4) annual forward dividend yield based on the dividend per share rate for the third quarter of 2019 using the stock price as of 9/20/2019 (for monthly dividend payers, the latest monthly dividend per share rate during the quarter); 5) annual forward dividend yield based on the dividend per share rate for the third quarter of 2019 using a BV as of 6/30/2019 (for monthly dividend payers, the latest monthly dividend per share rate during the quarter); 6) dividend per share rate for the fourth quarter of 2019 (for monthly dividend payers, the total monthly dividends during the quarter); 7) stock price as of 12/20/2019; 8) TTM dividend yield (dividend per share rate from the first-fourth quarter of 2019); 9) annual forward dividend yield based on the dividend per share rate for the fourth quarter of 2019 using the stock price as of 12/20/2019 (for monthly dividend payers, the latest monthly dividend per share rate during the quarter); 10) annual forward dividend yield based on the dividend per share rate for the fourth quarter of 2019 using the BV as of 9/30/2019 (for monthly dividend payers, the latest monthly dividend per share rate during the quarter); and 11) TTM dividend increase (decrease) percentage (for monthly dividend payers, dividend per share rate fluctuation from December 2018-December 2019).
As of 12/20/2019 ARMOUR Residential REIT Inc. (ARR), Dynex Capital Inc. (DX), and New York Mortgage Trust, Inc. (NYMT) had a stock price that "reset" lower regarding each company's monthly/quarterly dividend accrual. In other words, ARR's, DX's, and NYMT's "ex-dividend date" for December 2019/the fourth quarter of 2019 had already occurred. NLY, AGNC Investment Corp. (AGNC), Arlington Asset Investment Corp. (AI), Anworth Mortgage Asset Corp. (ANH), Cherry Hill Mortgage Investment Corp. (CHMI), Capstead Mortgage Corp. (CMO), Orchid Island Capital Inc. (ORC), Chimera Investment Corp. (CIM), Ellington Financial Inc. (EFC), Invesco Mortgage Capital Inc. (IVR), MFA Financial Inc. (MFA), AG Mortgage Investment Trust Inc. (MITT), Two Harbors Investment Corp. (TWO), Western Asset Mortgage Capital Corp. (WMC), Blackstone Mortgage Trust, Inc. (BXMT), Granite Point Mortgage Trust, Inc. (GPMT), New Residential Investment Corp. (NRZ), and PennyMac Mortgage Investment Trust (PMT) had stock prices that have not reset lower in reference to each company's December 2019/the fourth quarter of 2019 dividend accrual (all quarterly dividends with the exception of AGNC, ORC, and EFC). Readers should take these points into consideration as the analysis is presented below. Let us now begin the comparative analysis between NLY and the 20 mREIT peers.
Analysis of NLY
Using Table 4 above as a reference, NLY declared a dividend of $0.25 per share for the third quarter of 2019. This was an unchanged dividend when compared to the prior quarter. However, it should be noted after 22 consecutive quarters of a stable quarterly per share rate, NLY decreased the company's common stock dividend by ($0.05) per share during the second quarter of 2019. Due to the fact NLY aggressively reduced the company's dividend from $0.65 per share during the fourth quarter of 2011 to $0.30 per share by the fourth quarter of 2013, the company was also able to sustain its quarterly dividend per share rate over a longer time period when compared to most sector peers (especially its fixed-rate agency mREIT peers). Mainly due to a flattening yield curve that began back in 2018, along with the continued less "specialness" when it came to dollar-roll (off-balance sheet) financing, there was mounting pressure for NLY to reduce the company's dividend per share rate as 2019 progressed.
NLY's stock price traded at $8.95 per share on 9/20/2019. When calculated, this was a TTM dividend yield of 12.29%, an annual forward yield to NLY's stock price as of 9/20/2019 of 11.17%, and an annual forward yield to the company's BV as of 6/30/2019 of 10.72%. When comparing each yield percentage to NLY's agency mREIT peers within this analysis, the company's TTM dividend yield percentage and annual forward yield percentage based on its stock price were now modestly below average (due to the recent dividend decrease) while its annual forward yield percentage based on its BV remained slightly above average.
As was discussed in Part 1 of this article, NLY had the third lowest at-risk leverage ratio (on- and off-balance sheet) when compared to the seven other agency mREIT peers within this analysis (CHMI continued to have the lowest). From charting past trends, typically lower leverage ratios within the fixed-rate agency mREIT sector generally equate to below average-average dividend yield percentages. Of course, there are various other factors at play regarding dividend sustainability. However, a company's leverage ratio is one "general" metric which I believe should be analyzed.
I continue to believe three important metrics to analyze when assessing NLY's near-term dividend sustainability are the company's quarterly estimated REIT taxable income ("ERTI"), estimated core earnings ("ECE"), and most importantly its normalized core earnings ("NCE"). To analyze/explain these three metrics, Table 5 is provided below.
Table 5 - NLY Quarterly ERTI, ECE, and NCE Analysis (Q1 2018-Q3 2019)
(Source: Table created by me, partially using data obtained from NLY's quarterly shareholder presentation for the first quarter of 2017-third quarter of 2019)
Using Table 5 above as a reference, NLY reported quarterly ERTI available to common shareholders of $381.5, $281.4, $298.0, and $269.6 million for the first, second, third, and fourth quarters of 2018, respectively (see red reference "E"). When calculated, NLY had ERTI available to common shareholders of $0.33, $0.24, $0.25, and $0.21 per share, respectively (see red reference "E / F"). This was slightly above, modestly below, modestly below, and modestly below the company's dividend of $0.30 per common share, respectively.
However, this figure excluded the impact of NLY's net long "to-be-announced" ("TBA") mortgage-backed securities ("MBS") position during each quarter. When including "net dollar roll" ("NDR") income of $88.4, $62.5, $56.6, and $69.6 million (see red reference "G"), NLY reported quarterly ECE available to common shareholders of $469.9, $343.9, $354.6, and $339.2 million for the first, second, third, and fourth quarters of 2018, respectively (see red reference "I"). When calculated, NLY had quarterly ECE available to common shareholders of $0.41, $0.30, $0.29, and $0.26 per share, respectively (see red reference "I / F"). As readers can see, NLY's quarterly ECE was fairly volatile during 2018.
However, NLY's ECE also excludes another notable Generally Accepted Accounting Principles ("GAAP") to IRC adjustment when it comes to "true" taxable income ("TI"). NCE considers an additional GAAP versus IRC adjustment when compared to quarterly ERTI and ECE (specifically when it comes to NLY). Dependent upon management's projected lifetime conditional prepayment rate ("CPR") in regards to NLY's MBS portfolio, the "catch-up" premium amortization expense adjustment can materially alter the company's quarterly ERTI and ECE figures. NCE excludes/reverses this GAAP adjustment since an entity's cost basis per the IRC is not par.
As such, when also including NLY's catch-up premium amortization expense adjustment of ($118.4), $7.5, $3.4, and $45.5 million (see red reference "L"), the company reported NCE available to common shareholders of $351.5, $351.4, $358.0, and $384.7 million for the first, second, third, and fourth quarters of 2018, respectively (see red reference "N"). When calculated, NLY had NCE available to common shareholders of $0.30 per share for the first three quarters of 2018 while generating $0.29 per share for the fourth quarter (see red reference "N / F"). NLY's NCE calculates to a quarterly dividend distributions payout ratio of 99%, 99%, 102%, and 103% for the first, second, third, and fourth quarters of 2018, respectively (see red reference "J / N"). I believe most would agree NLY was able to basically match the company's NCE to its dividend distributions during 2018 (annual payout ratio of 101%). As readers can see, unlike NLY's quarterly ERTI and ECE, the company's quarterly NCE was extremely stable during 2018 and should be deemed the best metric to utilize when assessing the company's dividend sustainability. I believe this provides strong, factual evidence as to why NLY continued to maintain a quarterly dividend rate of $0.30 per share during 2018.
Moving to 2019, NLY reported quarterly ERTI available to common shareholders of $280.7, $185.7, and $173.1 million for the first, second, and third quarters of 2019, respectively. When calculated, NLY had ERTI available to common shareholders of $0.20, $0.13, and $0.12 per share, respectively. Each respective figure was notably below the company's dividend of $0.30 per common share for the first quarter of 2019 and $0.25 per common share for the second and third quarters of 2019. As discussed earlier, this figure excluded the impact of NLY's net long TBA MBS position. When including NDR income of $38.1, $33.2, and $15.6 million, NLY reported quarterly ECE available to common shareholders of $318.8, $219.0, and $188.6 million for the first, second, and third quarters of 2019, respectively. When calculated, NLY had quarterly ECE available to common shareholders of $0.23, $0.15, and $0.13 per share, respectively.
However, when also including NLY's catch-up premium amortization expense adjustment of $81.9, $139.8, and $117.2 million, the company reported NCE available to common shareholders of $400.7, $358.7, and $305.8 million for the first, second, and third quarters of 2019, respectively. When calculated, NLY had NCE available to common shareholders of $0.29, $0.25, and $0.21 per share, respectively. This calculates to a dividend distributions payout ratio of 108%, 101%, and 118% for the first, second, and third quarter of 2019, respectively.
NLY's NCE payout ratio of 108% for the first quarter of 2019 was the largest overpayment of this metric since the first quarter of 2014. As such, the "pressure" to consider reducing NLY's quarterly common stock dividend of $0.30 per share began to grow earlier this year. I believe two of the main reasons why NLY reduced the company's quarterly common stock dividend during the second quarter of 2019 were the following: 1) notably less "specialness"/attractiveness of the forward TBA market (notable decrease in NDR income when keeping constant one's net long TBA MBS notional balance); and 2) 2017-2018 rapid rise of the Federal ("Fed") Funds Rate which led to a rapid increase in repurchase ("repo") loan rates (borrowing costs).
Furthermore, even with NLY's ($0.05) per common share decrease to the company's dividend during the second quarter of 2019, NLY still had a quarterly dividend distributions payout ratio of 101% for the second quarter of 2019. I believe this was a bit "alarming" since NLY just reduced the company's common stock dividend by (17%) while still having a very minor overpayment (greater than 100% but less than 105% payout). In addition, during the third quarter of 2019, NLY already increased the company's dividend distributions payout ratio to 118%. Simply put, this should be seen as "very alarming" since this payout was already based on NLY's recently reduced dividend of $0.25 per common share. This "hinted" there was already some pressure on NLY to reduce the dividend again, especially if the recent partially inverted yield curve continued to persist heading into 2020.
I also believe this calculated payout was the main reason NLY "pre-announced" its common stock dividend for the fourth quarter of 2019 (which was unchanged at $0.25 per common share). Simply put, mainly due to the two factors listed above, there was a temporarily low amount of NCE being generated by this mREIT. This especially showed during the third quarter of 2019 with the notable overpayment. While I do anticipate NLY's NCE for the fourth quarter of 2019 will increase when compared to the third quarter of 2019 (recent steepening of the yield curve; including decrease in repo loan rates/borrowing costs), when it comes to dividend sustainability this specific metric still needs monitoring over the foreseeable future. If NLY needs/decides to reduce the company's quarterly dividend to $0.20 per common share in 2020, I project there would be a notable sell-off in its stock price.
Once again using Table 4 as a reference, NLY's stock price traded at $9.53 per share on 12/20/2019. When calculated, this was a TTM dividend yield of 11.02%, an annual forward yield to NLY's stock price as of 12/20/2019 of 10.49%, and an annual forward yield to the company's BV as of 9/30/2019 of 10.86%. When comparing each yield percentage to NLY's agency mREIT peers within this analysis, the company's TTM dividend yield percentage and annual forward yield percentage based on its stock price were modestly below average (due to the recent dividend decrease) while its annual forward yield percentage based on its BV remained slightly above average. Going forward, I continue to believe NLY should have an annual forward yield near the agency mREIT average.
Several Comparisons Between NLY and the Company's 20 Other mREIT Peers
Many readers have continued to request that I provide yield percentages, dividend per share rates, and other metrics for all the mREIT stocks I currently cover in ranking order. As such, using Table 4 above as a reference, the following metrics are provided for NLY and the 20 other mREIT peers:
TTM Dividend Yields as of 12/21/2018 and 12/20/2019, Respectively (Including Annual Dividend Change; Lowest to Highest Percentage as of 12/21/2018)(Good General Indicator of "Back-Testing" Dividend Sustainability; Exceptions Apply):
1) CMO: 7.23%; 5.96% (87.5% Dividend Increase)
2) BXMT: 7.74%; 6.55% (Stable Dividend)
3) GPMT: 8.98%; 8.97% (Stable Dividend)
4) PMT: 10.21%; 8.33% (Stable Dividend)
5) EFC*: 10.89%; 9.90% (2% Dividend Increase; 1 Special Periodic Dividend Totaling $0.14 Per Share Upon Switching to Monthly Frequency)
6) ARR: 11.20%; 12.24% (11% Dividend Decrease)
7) CIM: 11.45%; 9.48% (Stable Dividend)
8) IVR: 11.48%; 10.73% (19% Dividend Increase)
9) CHMI*: 12.02%; 12.18% (18% Dividend Decrease; 1 Special Periodic Dividend Totaling $0.15 Per Share)
10) MFA: 12.10%; 10.11% (Stable Dividend)
11) NLY: 12.13%; 11.02% (17% Dividend Decrease)
12) MITT: 12.37%; 12.02% (10% Dividend Decrease)
13) AGNC: 12.38%; 11.29% (11% Dividend Decrease)
14) DX: 12.81%; 11.87% (17% Dividend Decrease)
15) ANH: 13.56%; 11.72% (31% Dividend Decrease)
16) NYMT: 13.77%; 12.78% (Stable Dividend)
17) NRZ: 13.88%; 12.13% (Stable Dividend)
18) TWO: 14.23%; 11.13% (15% Dividend Decrease)
19) WMC: 14.32%; 11.64% (Stable Dividend)
20) ORC: 17.89%; 16.38% (Stable Dividend)
21) AI: 21.75%; 18.52% (40% Dividend Decrease)
* = For CHMI and EFC, applicable yield percentages include the special periodic dividend of $0.15 and $0.14 per common share for the fourth quarter of 2018 and first quarter of 2019, respectively
When comparing each company's TTM dividend yields, a general conclusion that can be drawn is that the lower a company's percentage was as of 12/21/2018, the lower the probability of a dividend decrease (or the higher the probability of a stable/increasing dividend) during the first-fourth quarter of 2019 (and vice versa). There are some expectations to this general trend. This specific metric was not that great when it came to CMO back in 2018. Let us analyze why it was not.
Regarding CMO, this mREIT basically solely invests in variable-rate agency MBS which are lower-yielding assets in this historically low interest rate environment. As such, with the continued increase in borrowing costs during 2018, at the time CMO reported a notable net decrease in financing spreads which negatively impacted the company's dividend. In addition, CMO had derivative instruments towards the shorter-end of the yield curve which were negatively impacted by constantly entering into new, higher-rate interest rate payer swaps during 2018's rising interest rate environment (less effective mitigation of valuation losses due to quick resets). This caused CMO to take very "cautionary" measures via lowering the company's dividend from $0.19 per common share during the fourth quarter of 2018 to just $0.08 per common share during the fourth quarter of 2018.
However, this specific metric was great when it came to CMO during 2019. Again, let us analyze why it was. With some assets "resetting" higher in 2019, along with three Fed Funds Rate 25 basis point ("bp") decreases during the second half of 2019 (which will eventually lead to lower borrowing costs), CMO increased the company's dividend from $0.08 per common share during the first quarter of 2019 to $0.15 per common share during the fourth quarter of 2019. Therefore, CMO originally "planned for the worst" during 2018 (long-term modestly inverted yield curve) and reacted accordingly during 2019 when such a scenario did not occur (partial yield curve lasted only a couple months; yield curve has recently steepened).
I believe one can see some patterns arise when analyzing each company's TTM dividend yields. For instance, since CMO (rank 1), BXMT (rank 2), GPMT (rank 3), PMT (rank 4), and EFC (rank 5) had a low-relatively low TTM dividend yield as of 12/21/2018 (below 11.00%), I do not believe it was a surprise each company either had a stable or increased dividend per share rate during the first-fourth quarter of 2019. As one moves down this list, it is also not surprising companies like ANH (rank 15), TWO (rank 18), and AI (rank 21) had a material (at or greater than 10%) decrease to each company's dividend per share rate during the first-fourth quarter of 2019.
As correctly projected at the time, I believed ORC's monthly dividend per share rate had mounting pressure for a reduction heading into 2018 as the company's quarterly ERTI steadily decreased as 2017 progressed. This analysis also previously correctly identified AI, TWO, and several other agency mREIT peers as having an increased risk for a dividend reduction at some point during 2019 (which ultimately came to fruition). This includes last quarter's analysis where I stated ANH needed monitoring (also stated a ($0.01) per common share reduction would not be a surprise). Looking ahead, I believe ORC needs to be constantly monitored throughout calendar year 2020. To a lesser extent, I also believe AI, NLY, TWO, GPMT, NRZ, and NYMT need periodic monitoring during 2020.
Annual Forward Yield Based on Stock Price as of 12/20/2019 (Lowest to Highest Percentage) (Another Good General Indicator of Near-Term Future Dividend Sustainability; Exceptions Apply):
1) BXMT: 6.55% (multipurpose mREIT)
2) CMO: 7.61% (variable-rate agency mREIT)
3) PMT: 8.33% (multipurpose mREIT)
4) GPMT: 8.97% (multipurpose mREIT)
5) EFC: 9.19% (hybrid mREIT)
6) CIM: 9.48% (hybrid mREIT)
7) ANH: 9.81% (variable-rate agency mREIT)
8) MFA: 10.11% (hybrid mREIT)
9) NLY: 10.49% (fixed-rate agency mREIT)
10) DX: 10.63% (hybrid mREIT)
11) TWO: 10.67% (hybrid mREIT)
12) AGNC: 10.84% (fixed-rate agency mREIT)
13) CHMI 10.94% (fixed-rate agency mREIT)
14) MITT: 11.39% (hybrid mREIT)
15) ARR: 11.56% (fixed-rate agency mREIT)
16) IVR: 11.60% (hybrid mREIT)
17) WMC: 11.64% (hybrid mREIT)
18) NRZ: 12.13% (multipurpose mREIT)
19) NYMT: 12.78% (multipurpose mREIT)
20) AI: 15.87% (fixed-rate agency mREIT)
21) ORC: 16.38% (fixed-rate agency mREIT)
Annual Forward Yield Based on BV as of 6/30/2019 (Lowest to Highest Percentage) (A Very Good General Indicator of Near-Term Future Dividend Sustainability; Exceptions Apply):
1) CMO: 6.98% (variable-rate agency mREIT)
2) ANH: 8.14% (variable-rate agency mREIT)
3) PMT: 8.89% (multipurpose mREIT)
4) BXMT: 8.91% (multipurpose mREIT)
5) EFC: 8.93% (hybrid mREIT)
6) GPMT: 9.01% (multipurpose mREIT) (periodic monitoring should occur)
7) CHMI: 9.41% (fixed-rate agency mREIT)
8) DX: 9.96% (hybrid mREIT)
9) ARR: 9.99% (fixed-rate agency mREIT)
10) MITT: 10.49% (hybrid mREIT)
11) NLY: 10.86% (fixed-rate agency mREIT) (periodic monitoring should occur)
12) TWO: 10.87% (hybrid mREIT) (periodic monitoring should occur)
13) AGNC: 10.96% (fixed-rate agency mREIT)
14) MFA: 11.28% (hybrid mREIT)
15) WMC: 11.70% (hybrid mREIT) (periodic monitoring should occur)
16) CIM: 12.21% (hybrid mREIT)
17) AI: 12.24% (fixed-rate agency mREIT) (periodic monitoring should occur)
18) IVR: 12.26% (hybrid mREIT)
19) NRZ: 12.30% (multipurpose mREIT) (periodic monitoring should occur)
20) NYMT: 13.86% (multipurpose mREIT) (periodic monitoring should occur)
21) ORC: 15.43% (fixed-rate agency mREIT) (continuous monitoring should occur)
Conclusions Drawn (Part 2)
Part 2 of this article compared NLY to 20 mREIT peers in regards to recent dividend per share rates, yield percentages, and several other dividend sustainability metrics. This article also discussed NLY's recent dividend decrease of ($0.05) per common share. Using Table 4 as a reference, the following were the recent dividend per share rate and yield percentages for NLY:
NLY: $0.25 per common share dividend for the fourth quarter of 2019; 11.02% TTM dividend yield; 10.49% annual forward yield to the company's stock price as of 12/20/2019; and 10.86% annual forward yield to the company's BV as of 9/30/2019.
When combining this data, along with metrics within Table 5 (most notably NCE), the following probability regarding NLY's near-term dividend sustainability is provided:
NLY: Modest-Relatively High (60%) probability of a stable dividend for Q1 2020 (projected increase in NCE during Q4 2019 [versus Q3 2019] and projected NCE near $0.25 per common share over the next several quarters). Still, periodic monitoring should occur.
I believe the movement of MBS prices will directly impact NLY's use of the TBA forward market (which directly impacts NDR income). As explained in Part 1 of this article, NLY's leverage, borrowing costs, hedging coverage ratio (risk management strategy), and prepayment speeds also need to be considered when discussing this topic.
My BUY, SELL, or HOLD Recommendation
Through an analysis that will be omitted from this particular article, my projected NLY CURRENT BV (BV as of 12/20/2019) is approximately $9.70 per share. This projection EXCLUDES accounting for NLY's upcoming quarterly dividend of $0.25 per common share (ex-dividend date has yet to occur). If one were to include this upcoming dividend, my projected CURRENT BV would be $9.45 per share. The relationship between MBS pricing and derivative instrument valuations during the fourth quarter of 2019 will be fully discussed in an upcoming MBS pricing article.
From the analysis provided above, including additional catalysts/factors not discussed within this article, I currently rate NLY as a SELL when I believe the company's stock price is trading at or greater than a 2.5% premium to my projected CURRENT BV (BV as of 12/20/2019; projection provided above), a HOLD when trading at less than a 2.5% premium through less than a (7.5%) discount to my projected CURRENT BV, and a BUY when trading at or greater than a (7.5%) discount to my projected CURRENT BV. These percentage ranges are unchanged when compared to my last NLY article (approximately one month ago).
Therefore, I currently rate NLY as a HOLD. As such, I currently believe NLY is appropriately valued (not overvalued, not undervalued). My current price target for NLY is approximately $9.95 per share. This is currently the price where my recommendation would change to a SELL. The current price where my recommendation would change to a BUY is approximately $8.95 per share.
Along with the data presented within this article, this recommendation considers the following mREIT catalysts/factors: 1) projected future MBS price movements; 2) projected future derivative valuations; and 3) projected near-term dividend per share rates. This recommendation also considers the four Fed Funds Rate increases by the Federal Open Market Committee ("FOMC") during 2018 (this was a more hawkish tone/rhetoric when compared to most of 2017) and the three Fed Funds Rate decreases during 2019 due to the recent dovish tone/rhetoric regarding overall monetary policy as a result of recent macroeconomic trends/events. This also considers the wind-down/decrease of the Fed's balance sheet through gradual runoff/partial non-reinvestment (which began in October 2017 which increased spread/basis risk) and the recent "easing" of this wind-down starting in May 2019 regarding U.S. Treasuries and August 2019 regarding agency MBS (which should partially reduce spread/basis risk when volatility remains subdued).
Each investor's BUY, SELL, or HOLD decision is based on one's risk tolerance, time horizon, and dividend income goals. My personal recommendation will not fit each reader's current investing strategy. The factual information provided within this article is intended to help assist readers when it comes to investing strategies/decisions.
Current/Recent mREIT Sector Stock Disclosures
On 1/31/2017, I initiated a position in NRZ at a weighted average purchase price of $15.10 per share. On 6/29/2017, 7/7/2017, and 12/21/2018, I increased my position in NRZ at a weighted average purchase price of $15.775, $15.18, and $14.475 per share, respectively. When combined, my NRZ position has a weighted average purchase price of $14.912 per share. This weighted average per share price excludes all dividends received/reinvested. Each NRZ trade was disclosed to readers in real time (that day) via the StockTalks feature of Seeking Alpha. I currently have a HOLD recommendation on NRZ.
On 6/29/2017, I initiated a position in CHMI at a weighted average purchase price of $18.425 per share. On 10/6/2017, 10/26/2017, 11/6/2017, 1/29/2018, 10/12/2018, 6/6/2019, 7/23/2019, and 9/5/2019 I increased my position in CHMI at a weighted average purchase price of $18.015, $18.245, $17.71, $17.145, $17.235, $16.315, $15.325, and $12.435 per share, respectively. When combined, my CHMI position has a weighted average purchase price of $13.739 per share (yes, my latest purchase was proportionately large). This weighted average per share price excludes all dividends received/reinvested. Each CHMI trade was disclosed to readers in real time (that day) via the StockTalks feature of Seeking Alpha. I currently have a BUY recommendation on CHMI.
On 8/31/2017, I initiated a position in CHMI's Series A preferred stock (CHMI.PA). On 9/12/2017, I increased my position in CHMI-A. When combined, my CHMI-A position has a weighted average purchase price of $25.198 per share. Each CHMI-A trade was disclosed to readers in real time (that day) via the StockTalks feature of Seeking Alpha. I currently have a HOLD recommendation on CHMI.PA.
On 1/29/2018, I initiated a position in TWO at a weighted average purchase price of $15.155 per share. On 4/17/2019, I increased my position in TWO at a weighted average purchase price of $13.165 per share. When combined, my TWO position has a weighted average purchase price of $13.825 per share. This weighted average per share price excludes all dividends received/reinvested. Each TWO trade was disclosed to readers in real time (that day) via the StockTalks feature of Seeking Alpha. I currently have a HOLD recommendation on TWO.
On 3/8/2018, I initiated a position in NYMT's Series D preferred stock (NYMTN). On 4/6/2018, 4/27/2018, 10/12/2018, 12/7/2018, 12/18/2018, and 12/21/2018 I increased my position in NYMTN. When combined, my NYMTN position has a weighted average purchase price of $22.379 per share. This weighted average per share price excludes all dividends received/reinvested. Each NYMTN trade was disclosed to readers in real time (that day) via the StockTalks feature of Seeking Alpha. I currently have a HOLD recommendation on NYMTN.
On 10/12/2018, I initiated a position in GPMT at a weighted average purchase price of $18.155 per share. This weighted average per share price excludes all dividends received/reinvested. This GPMT trade was disclosed to readers in real time (that day) via the StockTalks feature of Seeking Alpha. I currently have a HOLD recommendation on GPMT.
On 10/12/2018, I initiated a position in MITT at a weighted average purchase price of $17.105 per share. On 4/17/2019 and 6/3/2019, I increased my position in MITT at a weighted average purchase price of $16.22 and $15.52 per share, respectively. When combined, my MITT position has a weighted average purchase price of $15.946 per share. This weighted average per share price excludes all dividends received/reinvested. Each MITT trade was disclosed to readers in real time (that day) via the StockTalks feature of Seeking Alpha. I currently have a BUY recommendation on MITT.
On 6/3/2019, I initiated a position in ARR at a weighted average purchase price of $17.545 per share. On 9/10/2019, I increased my position in ARR at a weighted average purchase price of $16.785 per share. When combined, my ARR position has a weighted average purchase price of $16.975 per share. This weighted average per share price excludes all dividends received/reinvested. Each ARR trade was disclosed to readers in real time (that day) via the StockTalks feature of Seeking Alpha. I currently have a BUY recommendation on ARR.
On 6/3/2019, I initiated a position in IVR at a weighted average purchase price of $15.49 per share. This weighted average per share price excludes all dividends received/reinvested. This IVR trade was disclosed to readers in real time (that day) via the StockTalks feature of Seeking Alpha. I currently have a HOLD recommendation on IVR.
On 11/22/2019, I initiated a position in ANH at a weighted average purchase price of $3.475 per share. This weighted average per share price excludes all dividends received/reinvested. This ANH trade was disclosed to readers in real time (that day) via the StockTalks feature of Seeking Alpha. I currently have a BUY recommendation on ANH.
On 11/22/2019, I initiated a position in AI's Senior Notes Due 2023 (AIW) at a weighted average purchase price of $24.13 per share ($25 being par). This weighted average per share price excludes all interest received/compounded. This AIW trade was disclosed to readers in real time (that day) via the StockTalks feature of Seeking Alpha. I currently have a BUY recommendation on AIW.
Final Note: All trades/investments I have performed over the past several years have been disclosed to readers in real time (that day at the latest) via the StockTalks feature of Seeking Alpha (which cannot be changed/altered). Through this resource, readers can look up all my prior disclosures (buys/sells) regarding all companies I cover here at Seeking Alpha (see my profile page for a list of all stocks covered). Through StockTalks disclosures, at the end of November 2019, I had an unrealized/realized gain "success rate" of 96.6% and a total return (includes dividends received) success rate of 97.9% out of 47 total past and present positions (updated monthly; multiple purchases/sales in one stock count as one overall position until fully closed out). I have yet to realize a "total loss" in any of my past positions. Both percentages experienced a minor increase in October and November due to the continued reversal of the previous sell-off within the mREIT sector; mainly due to a partial easing of fears of narrowing net spreads and higher prepayments. I encourage other Seeking Alpha contributors to provide real time buy and sell updates for their readers which would ultimately lead to greater transparency/credibility.
I am currently "teaming up" with Colorado Wealth Management to provide intra-quarter CURRENT BV per share projections on all 21 mREIT stocks I currently cover. These very informative (and "premium") projections are provided through Colorado's S.A. Marketplace service. I also provide "rapid-fire" mREIT quarterly earnings articles. In late October 2019, I have expanded my services via additional data/analytics, continuous sector recommendations (including ranges), and exclusive mREIT articles. In late November 2019, I have expanded my services to include BDC data/analytics, continuous sector recommendations (including ranges), and exclusive articles.
