Chris Lau, Kapitall: Annaly Capital has one of the highest dividends in the industry and is down 30% this year. Are REITs worth a look? It is not often a good sign to be bullish when a company cuts its dividend. However when Annaly Capital Management (NLY) cut its dividend by 14.3% on December 19, 2013, shares held steady within the $10 price range. The likely reason is that investors already anticipated the cut. However now that the dividend is $1.20 per annum and yielding 11.86%, it makes sense to ask whether investors should look at stocks like Annaly as an income investment opportunity? Annaly is a real estate investment trust (REITs). The company has raised dividends steadily for more than a decade, and has a portfolio of agency mortgage-backed securities. Value investors might like that Annaly trades at a big discount to book value. According to Kapitall’s number cruncher, Annaly has a book value of $13.66. It now trades at a price to book ratio of 0.7. The company is not the only stock in the sector to sell off, though shares are down nearly 14%, compared to the single digit declines for competitors: Click on the interactive chart to view data over time. For the year, Annaly is down 30.3% and this could entice investors holding the company to sell the stock in 2013 to realize losses. However the steep discount to book value in Annaly looks especially attractive in a high-valuation environment, especially among tech stocks. For example, Twitter (TWTR) is trading north of 56 times price to sales and pays no dividend at all. Risks Rising interest rates are often a cause for concern for the REIT sector, but so far, risks remain muted. The Federal Reserve will taper its stimulus by reducing bond purchase rates to $75 billion, down from $85 billion. The cautious move suggests interest rates will remain exceptionally low throughout 2014.
ConclusionBuying an REIT like Annaly now could be like bottom fishing, but the unusually low valuation in this company relative to the expensive stock market suggests a higher stock price is possible. To give you a better picture, we built a list of stocks that compare Annaly to its three largest competitors. Click on the interactive chart to view data over time. Will Annaly rebound and outpace some of its competitors in the REIT space? Or is the sell-off justified? 1. Annaly Capital Management, Inc. ( NLY): Engages in the ownership, management, and financing of a portfolio of investment securities. Market cap at $9.46B, most recent closing price at $9.77.
2. American Tower Corporation ( AMT): Operates as a wireless and broadcast communications infrastructure company. Market cap at $31.58B, most recent closing price at $79.80.
3. Public Storage ( PSA): Operates as a real estate investment trust (REIT). Market cap at $26.05B, most recent closing price at $151.57.
4. Vornado Realty Trust ( VNO): Is a privately owned real estate investment trust. Market cap at $16.78B, most recent closing price at $89.75. (Written by Chris Lau, a Kapitall Contributor. List compiled by James Dennin. Analyst ratings sourced from Zacks Invesment Research. All other data sourced from Finviz.)