Is Annaly Stock Worth a Spot in Your Portfolio Post Q2 Earnings Beat?

Annaly Capital Management NLY posted second-quarter 2025 results on July 23, with earnings beating the Zacks Consensus Estimate. Despite the ongoing tariff-related uncertainty and volatility in the mortgage market, NLY was able to navigate the market.The company’s average yield on interest-earning assets (excluding premium amortization adjustment or PAA) was 5.42%, up from the prior-year quarter’s 5.17%.The average net interest spread, a critical indicator of earnings, was 1.47% in the second quarter, increasing from 1.24% in the prior-year quarter. Also, the net interest margin (excluding PAA) was 1.71% compared with 1.24% in the second quarter of 2024.Despite significant volatility across financial markets, Annaly delivered its seventh consecutive quarter with a positive economic return, underscoring the benefits of holding its agency, residential credit, and mortgage servicing rights (MSR) strategies together on the balance sheet. The company generated a positive economic return of 0.7% in the second quarter of 2025.However, the company’s book value per share was $18.45 as of June 30, 2025, down from $19.25 in the prior-year quarter.Given Annaly's strong quarterly performance, many investors must be tempted to buy the stock. But is it the right time? Let us delve deeper and analyse other factors at play to decide its investment worthiness.Annaly to Gain From Decline in Mortgage RatesThe Federal Reserve has lowered the interest rates by 100 basis points in 2024 and has kept rates steady since then. As such, mortgage rates are witnessing a slight decline. Per a Freddie Mac report, the average rate on a 30-year fixed-rate mortgage was 6.74% as of July 24, 2025, down from 6.78% in the same week a year ago.Housing affordability challenges are declining with relatively lower mortgage rates. With rates trending lower and balanced supply/affordability playing out in the mortgage market, loan demand is witnessing an increase. This aided NLY’s net interest income (NII) in the second quarter of 2025. NII was $273.2 million in the reported quarter compared with $53.6 million in the prior-year quarter.With improving purchase originations and refinancing activities, NLY will likely witness book value improvement in the coming period as spreads in the Agency market tighten, driving asset prices. This should also boost net interest spread, improving the portfolio's overall yield. This is expected to support Annaly’s financials in the upcoming period.Portfolio Diversification to Aid NLYOne of Annaly's main advantages is its well-diversified capital allocation approach. The company's investment portfolio includes residential credit, MSR and agency mortgage-backed securities (MBS). This comprehensive strategy aims to lower volatility and sensitivity to interest rate changes while simultaneously generating appealing risk-adjusted returns. As of June 30, 2025, its investment portfolio aggregated $89.5 billion, including $79.5 billion in a highly liquid Agency portfolio.Annaly's diversified investment strategy will likely be a key contributor to long-term growth and stability. By diversifying its investments across the mortgage market, the company is better positioned to capitalize on opportunities as they occur in multiple areas while limiting the risks associated with overexposure to any particular location.Annaly is also focusing on improving its capabilities by acquiring newly originated MSRs from its partner network, which will continue to provide a strong advantage in expanding its MSR business.The inclusion of MSRs in the portfolio is also notable because these assets tend to increase in value as interest rates rise, offsetting reductions in the value of agency MBS. These hedging impacts may produce more consistent returns over time and enable NLY to perform well in a scenario of interest rate change.Annaly achieved significant growth across its platform in the second quarter, with its agency portfolio increasing by nearly $5 billion through the effective deployment of newly raised capital. In residential credit, NLY saw record levels of origination and securitization. Its MSR portfolio continues to be a strong source of cash flow.Management remains encouraged by opportunities across each of its core strategies. With a diversified approach to housing finance, Annaly will be able to deliver consistent, risk-adjusted returns across market cycles.NLY’s Strong Dividend ProfileAnnaly has a record of paying out monthly dividends, currently yielding a staggering 13.5% compared with the industry’s 12.4%. It currently sits at a payout ratio of 99%.Dividend Yield Image Source: Zacks Investment Research The company hiked its dividend once in the past five years. In March 2025, Annaly announced a cash dividend of 70 cents per share for the first quarter of 2025, marking a 7.7% hike from the prior payout. This move reflects confidence in NLY’s cash flow and growth prospects.Annaly peer AGNC Investment AGNC and Arbor Realty Trust ABR also pay out quarterly dividends. AGNC Investment has a dividend yield of 14.3%, whereas Arbor Realty Trust has a dividend yield of 11.7%.Coming back to Annaly, it is focused on improving its liquidity and reducing leverage to support capital distribution activities. Till the end of the second quarter of 2025, the company had $7.4 billion of total assets available for financing, including cash and unencumbered Agency MBS of $4.7 billion, which can readily provide liquidity in times of adverse market conditions. This provides a substantial competitive edge in today's market. On Dec. 31, 2024, the company’s board of directors authorized a common share repurchase program, which will expire on Dec. 31, 2029. Under the program, the company may repurchase up to $1.5 billion of its outstanding shares of common stock. Though the company has not repurchased shares under this plan since it was announced, its solid liquidity position will support its capital distribution in the future.NLY’s Price Performance & Estimate AnalysisOver the past six months, Annaly shares have gained 8.4% compared with the industry’s rise of 2.8%. NLY has also outperformed its peers AGNC Investment and Arbor Realty Trust over the same time frame. AGNC Investment has grown 3.6%, while Arbor Realty Trust has fallen 6.6%.Price Performance Image Source: Zacks Investment Research The Zacks Consensus Estimate for NLY’s 2025 and 2026 sales implies year-over-year growth of 463.4% and 29.2%, respectively.Sales Estimates Image Source: Zacks Investment Research The Zacks Consensus Estimate for NLY’s 2025 and 2026 earnings indicates year-over-year rallies of 6.7% and 5.1%, respectively. Earnings estimates for both years have been revised upward over the past month.Earnings Estimates Image Source: Zacks Investment Research How to Approach NLY Stock Now?Annaly presents a compelling opportunity for income-focused investors seeking a high dividend yield. With improving interest spreads, a diversified portfolio that mitigates rate volatility and solid liquidity reserves, NLY is well-positioned to deliver stable, risk-adjusted returns even in a mixed economic environment.While risks remain, including interest rate fluctuations and book value sensitivity, the company’s disciplined capital allocation, strong quarterly performance and upward earnings estimates revision suggest that the stock has both income and moderate growth potential.From a valuation standpoint, NLY appears attractive relative to the industry. The company is currently trading at a discount with a forward 12-month price-to-earnings (P/E) F12M multiple of 6.97X, lower than the industry average of 7.98X. Price-to-Earnings F12M Image Source: Zacks Investment Research Hence, prospective investors can consider buying the NLY stock at its current level.NLY currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.Higher. Faster. Sooner. Buy These Stocks NowA small number of stocks are primed for a breakout, and you have a chance to get in before they take off.At any given time, there are only 220 Zacks Rank #1 Strong Buys. On average, this list more than doubles the S&P 500. We’ve combed through the latest Strong Buys and selected 7 compelling companies likely to jump sooner and climb higher than any other stock you could buy this month.You'll learn everything you need to know about these exciting trades in our brand-new Special Report, 7 Best Stocks for the Next 30 Days.Download the report free now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report AGNC Investment Corp. (AGNC): Free Stock Analysis Report Arbor Realty Trust (ABR): Free Stock Analysis Report Annaly Capital Management Inc (NLY): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks