Annaly's earnings beat and wider spread offset rising-rate pressure on its dividend
Q2 earnings surge and book value growth Annaly's second-quarter net income jumped to $781.64 million from $19.84 million a year earlier, and book value per share rose to $20.15 from $18.45. Stronger earnings and a bigger asset base support the dividend and lift the stock.
The earnings surge is the period's biggest positive force on NLY's price.
Wider net interest spread as Fed holds rates The Fed has kept its benchmark rate at 3.75% for 231 days, while longer mortgage and Treasury yields climbed. That widened Annaly's net interest spread to 1.16% from 0.66%, meaning it earns more on its mortgage holdings relative to its borrowing costs.
This explains the core profit engine behind NLY's gains this period.
Dividend held at 75 cents, hedging raised Annaly declared a $0.75 third-quarter dividend, keeping the payout it raised earlier, and lifted its hedge ratio to 97% from 87%. A steady payout reassures income investors, while heavier hedging cushions the portfolio if rates keep rising.
The dividend declaration and stronger hedging are fresh, concrete supports for the stock.
Mortgage rates above 7% threaten book values U.S. mortgage rates topped 7% for the first time in over a year on inflation and energy-price worries. Sharp yield rises can cut the value of Annaly's mortgage bonds, though slower prepayments and its mix of credit and mortgage-servicing assets may soften the blow.
This is the main counterweight: higher rates can hurt the value of NLY's holdings even as they widen spreads.