Annaly Capital Management, Inc. (NYSE: NLY) is in the world of high-yielding mortgage real estate investments trusts, and investors often use this one as a bellweather for the entire sector as it is supposed to be one of the best-run of this sort of REIT.  Its earnings report is out and it is going to be of interest to anyone who invests in this sector for the very dividend payments.

GAAP net income for the quarter was $901.8 million or $0.92 per common share. Without the effect of the unrealized gains or losses on interest rate swaps and Agency interest-only mortgage-backed securities, net income was $529.3 million or $0.54 per common share.

Annaly also showed that it disposed of $5.3 billion of Agency mortgage-backed securities and debentures in the last quarter, which resulted in a realized gain of $80.3 million.

Common dividends declared for the quarters ended March 31, 2012, March 31, 2011, and December 31, 2011 were $0.55, $0.62, and $0.57 per common share, respectively. Annaly was quick to point out that it distributes dividends based on its current estimate of taxable earnings per common share rather than on its GAAP earnings.

Annaly also went on to note that it continues to see the benefits of being conservative in its business so that it can maneuver through the markets “to deliver attractive risk-adjusted returns to shareholders, protect our portfolio and maintain our flexibility to take advantage of investment opportunities as they arise.”

Investors will want to take note of a lower interest rate spread from a year ago, but this is actually flat on a sequential basis… The annualized yield on average interest-earning assets was 3.23% in the quarter and the annualized cost of funds on average interest-bearing liabilities (including the net interest payments on interest rate swaps) was 1.52%, which resulted in an average interest rate spread of 1.71%.  Annaly confirmed that this was a 46 basis point decrease from the 2.17% annualized interest rate spread at the end of March 2011 and equal to the 1.71% average interest rate spread for the quarter ended December 31, 2011

Leverage is down from a year ago at 5.81 to 1 versus 6.3 to 1 but the leverage is higher than the sequential quarter of 5.4 to 1. Fixed-rate mortgages also came in at the highest reading of 91% in this last quarter versus a year ago and versus the sequential quarter.

Shares closed down 0.7% at $16.29 on the day against a 52-week range of $14.05 to $18.79 and shares are now back up almost 0.7% at $16.40 in the after-hours on this report.  The current yield is 13.5% but we’ll have to wait for the real price action and the new dividend rate before focusing on any twelve month annualized dividend calculations.

JON C. OGG

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