"For my money, the safest dividends come from Annaly Mortgage Management (NLY, Financial)," says Jack Adamo.
In his Insiders Plus newsletter, he adds, "The real estate investment trust's entire income stream comes from U.S. government-backed securities. There’s no way Uncle Sam can afford to default on them." Here's his reasoning.
"The company is leveraged in order to get its high dividend, but management has handled this very well for the many years I’ve followed the company, including the recent debacle of many of its peers.
"And it isn’t only me who is impressed. Jim Grant -- who is as conservative a curmudgeon as you’ll ever see when it comes to investing -- likes the company.
"Current leverage is under 7x, compared to 12 to 14x for most conservative banks. It was leverage of 30 or more that sunk the big investment banks recently.Â
"When times get better, Annaly can lever up a bit more and increase profits while remaining safe. Management has been very judicious about expanding its balance sheet in the current environment.
"The only problem with Annaly is that the dividends vary. Although it invests in government-backed securities, it is structured as a real estate investment trust.
"Therefore, it’s required to pay out almost all its income in dividends. That means it can’t reserve and adjust its payout ratio to smooth the dividend stream.Â
"At the current rate, the shares yield 14.8%, but that could be reduced to half that in leaner times, and for short periods, I’ve seen the payout drop to levels that would yield just over 4% at today’s price.
"But even that’s not bad by today’s standards, and on average, it should continue to yield comfortably above 6%, and maybe closer to 9%. You just have to put up with the volatility of the income stream and the stock’s price.
"Capital gain potential in Annaly is also good. The stock is at $13 and change, but it tends to be cyclical; I’ve seen it in the low 20s further along its sine wave. As the mortgage market recovers and people have more faith in the dividend, I can see it going north of $25, where I would probably sell it.Â
"But we’re talking three or more years out. On a total return basis,I expect you’ll start getting your money in a matter of months, not years.We hold Annaly in our income portfolio and recommend buying up to $16.25."
The Stock Advisors
www.thestockadvisors.com
In his Insiders Plus newsletter, he adds, "The real estate investment trust's entire income stream comes from U.S. government-backed securities. There’s no way Uncle Sam can afford to default on them." Here's his reasoning.
"The company is leveraged in order to get its high dividend, but management has handled this very well for the many years I’ve followed the company, including the recent debacle of many of its peers.
"And it isn’t only me who is impressed. Jim Grant -- who is as conservative a curmudgeon as you’ll ever see when it comes to investing -- likes the company.
"Current leverage is under 7x, compared to 12 to 14x for most conservative banks. It was leverage of 30 or more that sunk the big investment banks recently.Â
"When times get better, Annaly can lever up a bit more and increase profits while remaining safe. Management has been very judicious about expanding its balance sheet in the current environment.
"The only problem with Annaly is that the dividends vary. Although it invests in government-backed securities, it is structured as a real estate investment trust.
"Therefore, it’s required to pay out almost all its income in dividends. That means it can’t reserve and adjust its payout ratio to smooth the dividend stream.Â
"At the current rate, the shares yield 14.8%, but that could be reduced to half that in leaner times, and for short periods, I’ve seen the payout drop to levels that would yield just over 4% at today’s price.
"But even that’s not bad by today’s standards, and on average, it should continue to yield comfortably above 6%, and maybe closer to 9%. You just have to put up with the volatility of the income stream and the stock’s price.
"Capital gain potential in Annaly is also good. The stock is at $13 and change, but it tends to be cyclical; I’ve seen it in the low 20s further along its sine wave. As the mortgage market recovers and people have more faith in the dividend, I can see it going north of $25, where I would probably sell it.Â
"But we’re talking three or more years out. On a total return basis,I expect you’ll start getting your money in a matter of months, not years.We hold Annaly in our income portfolio and recommend buying up to $16.25."
The Stock Advisors
www.thestockadvisors.com
