Why I Like This F-Rated 10% Yielder

It’s not often that I am bullish on a company whose SafetyNet Pro rating is an F. But that is the case with Annaly Capital Management (NYSE: NLY).

SafetyNet Pro analyzes the likelihood of a dividend cut.

I don’t like dividend cuts. In fact, I despise them…

So much so, that if any company that is recommended in my Oxford Income Letter portfolios lowers its dividend, we sell immediately. The portfolios in The Oxford Income Letter are designed to generate rising income so that, each year, investors get paid more than they did the year before.

If a company reduces its dividend, that detracts from the goal of ever-increasing income.

So a dividend cut means removal from the portfolio.

If that’s the case, why in the world would I have recommended Annaly last summer if SafetyNet Pro rates it an F?

What Is SafetyNet Pro?

SafetyNet Pro is a groundbreaking tool that predicts dividend cuts and raises with stunning accuracy. With it, you can determine the dividend safety rating of nearly 1,000 stocks. Access to SafetyNet Pro is reserved exclusively for subscribers of Marc’s newsletter, The Oxford Income Letter. 

First off, subscribers are glad I did, as the stock’s return since June of last year is more than 26%.

Annaly is rated an F for dividend safety because it has a history of lowering its dividend.

In previous years, Annaly had a variable dividend policy. Some quarters, it was up significantly… others, it was down sharply.

SafetyNet Pro penalizes companies for cutting their dividends on the thesis that a management team that is willing to lower the dividend once will do so again if times get tough.

Today, however, management has made the dividend more reliable. The company has paid a $0.30 per share quarterly dividend since December 2013, giving the stock a 10% yield.

Annaly is a mortgage REIT. It makes money by borrowing at short-term rates and lending at long-term rates. The difference between the rates is the spread. When the spread is wide, Annaly (and other mortgage REITs) make more money. When the spread is narrow, it makes less.