Investing
Annaly Capital's 16.4% Yield Comes With a History of Dividend Cuts
By Bear Creek Staff, . Bear Creek Capital Network.
Annaly Capital Management (NYSE: NLY), a mortgage real estate investment trust, or REIT, is drawing attention for a forward dividend yield of 16.4%, well above what most income-focused investors can find elsewhere. A mortgage REIT pools investor capital to buy mortgage-backed securities and other home-loan assets, earning the spread between its borrowing costs and what those assets pay. The Motley Fool ran the numbers on what it would take to generate $1,000 a month from the stock, and the answer is a five-figure sum with meaningful strings attached.
What the yield actually requires
At $0.75 per share each quarter, Annaly pays $3 per share annually. Reaching $12,000 a year, the equivalent of $1,000 a month, requires 4,000 shares. With the stock trading around $18.26, that position costs roughly $73,040. The yield is real, but the capital commitment is not trivial, and the income is not guaranteed.
Why the history matters
Annaly's Q3 2026 earnings release, filed with the SEC, showed earnings available for distribution, a measure of cash the company can use to fund its dividend, of $0.80 per share for the quarter, modestly above the $0.75 payout. That coverage looks adequate on its face.
The recent trend also looks constructive: the company raised its quarterly dividend from $0.65 to $0.70 in 2025 and again to $0.75 since then, marking two consecutive annual increases. But 2023 tells a different story. When rising interest rates compressed the spread between Annaly's borrowing costs and its asset yields, the core of how a mortgage REIT makes money, the company cut its quarterly dividend from $0.88 to $0.65. That is a reduction of more than 26% in a single move.
The Motley Fool also flags the total return picture: over the past five years, Annaly's combined stock price gains and dividends add up to just 4.6%, against a total return of over 80% for the S&P 500 over the same period. A high yield that is offset by capital erosion is not the same as income.
What this means for income investors
The risk here is what income investors call a yield trap: a payout that looks attractive but is sustained only as long as conditions hold, and that has already been cut once when they did not. The current earnings coverage is thin enough that another shift in the rate environment, which directly affects the spread mortgage REITs depend on, could put the dividend under pressure again.
The Motley Fool's conclusion, attributed to contributor Thomas Niel, is direct: income-focused investors may want to look elsewhere, given the yield-trap risk. That is one analyst's view, not a consensus, and investors with a different read on where interest rates are headed may weigh it differently.
What to watch: the trajectory of short-term borrowing costs relative to mortgage asset yields, Annaly's earnings available for distribution in coming quarters relative to the $0.75 payout, and any guidance the company offers on dividend sustainability. A narrowing coverage ratio, EAD falling toward or below the dividend, would be the clearest early signal that 2023 could repeat.
Sources
1. Annaly Pays 75 Cents a Share Each Quarter. 4,000 Shares Would Pay You $1,000 a Month., fool.com
2. ANNALY CAPITAL MANAGEMENT INC - Form 8-K - FY2026, sec.gov
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