Annaly Capital stock has plunged this month, reaching its lowest level since March of this year. NLY has slumped in the last six consecutive days, its longest losing streak in over a year. It has slumped by 17.6% from its August highs, helping boost its dividend yield to 14.7%. So, is it a safe investment to make today?
Annaly Capital stock is falling as bond yields jump
Annaly Capital Management is a top company with over $109 billion in assets under management, with $17 billion of this being permanent capital. It has grown to become one of the top players in home financing, helping over 1.3 million homes over time.
The company is well-known in the dividend (income) investment community, thanks to its high dividends and the fact that it has delivered $29 billion in payouts over time.
It operates the Annaly Agency Group, which invests in mortgage-backed securities and agency collateralized mortgage-backed securities (CMBS). These products are usually guaranteed by Fannie Mae, Freddie Mac, or Ginnie Mae. This division has over $100 billion in assets
It also operates the Annaly Residential Credit Group, which invests in non-agency residential mortgage assets. The ARCG business has over $8 billion in assets. Additionally, it offers the Annaly Mortgage Servicing Rights Group, which invests in mortgage servicing rights.
The most recent results showed that Annaly Capital’s business did relatively well, with the book value per common share rising to $20.15 from $18.45 in the same period last year. This growth happened as the net interest margin rose to 1.47%.
The report also showed that its total income for the quarter was $247 million, while the net income available to common stockholders rose to $781 million.
Federal Reserve hikes and bond yields
Annaly’s business is affected by the actions of the Federal Reserve. Just recently, the bank hiked interest rates and hinted that it will deliver another hike later this year. Odds of a hike happening either in October or December have jumped to over 80%.
As a result, the company uses hedges to offset this volatility. Its hedge ratio rose to 97% in the June quarter from 92% in the same period last year. It also reduced the average days to maturity on repurchase agreements to 33 from 49 last year.
Annaly’s stock has also slipped because of the ongoing soaring bond yields, with the 30-year rising to the highest level since 2004. The ten-year yield has continued rising after crossing the 5% level a few weeks ago.
Analysts tracking Annaly have a neutral outlook. JPMorgan slashed the target from $26 to $24, while Wells Fargo cut it to $24 from $25.
Annaly Capital stock has lost a crucial support level
NLY stock chart | Source: TradingView
The daily chart shows that the NLY stock has slumped in the past few months as bond yields have soared. It has already plunged below the important support level of $20.22, its lowest level on June 8. Moving below that level confirmed the bearish breakout.
The stock is about to form a mini death cross pattern as the spread between 50-day and 100-day moving averages narrows. In most cases, this pattern usually leads to further downside.
There are also signs that it has formed an inverted cup-and-handle pattern. Therefore, the path of the least resistance is downward, with the next target to watch being at $19.30, its lowest level on March 20th.
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