Annaly Capital Management Inc.

NLY
Financial Analysis · Updated May 29, 2026 · Coverage 2026-Q2
TTM ROIC
13%
FY2024 · Distributable Earnings / Book Equity (Distributable ROE)
Diluted Shares
1.46B
FY2024 · +0.69% (dilution)

Business Overview


title: "Step 01 — Business Overview" ticker: NLY company: Annaly Capital Management, Inc. source: coverage-next-full date: 2026-05-28

Step 01 — Business Overview: NLY (Annaly Capital Management)

1. Company Description

Annaly Capital Management, Inc. (NYSE: NLY) is the largest U.S. agency mortgage real estate investment trust (mREIT). [S1] Founded in 1997, NLY borrows money at short-term rates (primarily through repurchase agreements and Federal Home Loan Bank advances) and invests the proceeds in government-guaranteed mortgage-backed securities, earning a net interest spread. The company distributes the majority of this income as dividends, consistent with its REIT tax election requiring ≥90% taxable income distribution. [S2]

As of Q1 2026, NLY operates across three investment strategies with $138.5 billion in total assets: [S3]

  1. Agency MBS (~64% of portfolio capital): Fannie Mae, Freddie Mac, and Ginnie Mae guaranteed MBS — no credit risk, only interest rate and prepayment risk
  2. Residential Credit (~21%): Non-agency residential mortgage loans, non-agency MBS, and residential whole loans — adds credit spread over agency MBS
  3. Mortgage Servicing Rights / MSR (~15%): Serving rights on residential mortgage loans ($716.6B UPB as of year-end 2025) — creates a natural rate hedge (MSR value rises when interest rates rise)

2. Value-Chain Layer Map

CAPITAL MARKETS (Equity + Preferred issuance) → CAPITAL FORMATION
        ↓
REPO MARKET (Short-term collateralized borrowing at SOFR-linked rates) → LEVERAGE
        ↓
LONG-TERM DEBT (Senior unsecured notes, FHLB advances) → TERM FUNDING
        ↓
PORTFOLIO MANAGEMENT (Asset selection, MBS purchase, RC whole loans, MSR acquisition)
        ↓
INTEREST INCOME (coupon from MBS + RC spread + MSR strip)
        ↓
HEDGING (Interest rate swaps, swaptions, TBAs — management of duration mismatch)
        ↓
NET INTEREST SPREAD (Interest income − Interest expense − Hedging cost)
        ↓
OPERATING EXPENSES (Internalized G&A: ~$200M/year post-2020)
        ↓
EAD (Earnings Available for Distribution = core "economic" income)
        ↓
DIVIDENDS (≥90% taxable income required by REIT structure)

3. Business Model Economics

Revenue Drivers

NLY's economics are entirely determined by:

  • Portfolio Size: Total MBS/RC/MSR owned; currently $104.7B (FY2025 year-end)
  • Asset Yield: Coupon yield of MBS owned; tied to prevailing mortgage rates
  • Funding Cost: Repo rates (SOFR-linked) + LT debt coupon; the "liability side"
  • Net Interest Spread (NIS): Asset yield minus funding cost; Q1 2026 NIS = 1.41% (1.71% ex-PAA)
  • Leverage: Multiplies the NIS return; Q1 2026 GAAP leverage = 7.3x, economic = 5.7x
  • Hedging Costs/Gains: Interest rate swaps partially offset funding cost volatility; hedge ratio = 87%
Return Formula (simplified)

EAD Return on Equity ≈ NIS × Leverage − G&A / Equity Q1 2026 annualized: ~14.6% EAD ROE = ~1.71% NIS × 5.7x leverage − G&A drag

Internalization (2020): Structural Milestone

Prior to 2020, NLY paid external management fees to a third-party advisor — a significant expense and governance conflict. [S4] Internalization eliminated this cost (estimated $100–200M annually based on industry norms at this AUM), aligned management compensation with total return, and removed the principal-agent conflict that plagued prior externally managed mREITs. This is a material governance positive that distinguishes NLY from AGNC Investment Corp (still externally managed as of 2026).

4. Business Segment Overview

Agency MBS Strategy
  • Assets: Fixed-rate and adjustable-rate agency MBS, CMBS backed by government guarantee
  • Return Driver: MBS coupon yield (tied to prevailing mortgage rates) minus repo cost
  • Risk: Duration mismatch (long-duration assets, short-duration liabilities) → interest rate risk; prepayment risk
  • Hedge: Interest rate swaps (pay-fixed/receive-floating) to reduce duration; TBA sales
  • Scale: $92.9B (year-end 2025) — largest agency MBS holder among pure mREITs
Residential Credit Strategy
  • Assets: Non-agency residential MBS, residential mortgage loans, whole loans, CMBS
  • Return Driver: Credit spread over agency MBS; typically 50–150bps additional yield
  • Risk: Credit risk (borrower default), liquidity risk (less liquid than agency MBS)
  • Hedge: Limited — credit risk partially mitigated by senior position in capital stack
  • Scale: Growing; NLY "closed record securitizations" in 2025
Mortgage Servicing Rights (MSR) Strategy
  • Assets: Rights to service residential mortgage loans ($716.6B UPB as of Q4 2025)
  • Return Driver: Servicing fee (25bps annually on remaining UPB) + ancillary income
  • Natural Hedge: MSR value rises when interest rates rise (slower prepayments = longer servicing cash flows) — offsets agency MBS losses in rising-rate environment
  • Risk: Prepayment risk (if rates fall, mortgages refinance, MSR value declines)
  • Scale: Significant servicer; $716.6B UPB = ~$1.8B market value (est. 25bps × UPB)

5. Competitive Positioning

  • Market Position: Largest agency mREIT by assets ($138.5B vs. AGNC's ~$80B)
  • Scale Advantages: Better repo counterparty access, more diversified funding sources, lower per-unit G&A
  • Differentiation: Three-strategy model (agency + RC + MSR) vs. AGNC's pure-agency focus
  • Governance: Internalized management (superior to externally managed peers)
  • Dividend Track Record: Active dividend management; cut dividends during rate stress (2022–2023) and restored (2024–2026)

6. Geographic / Customer Concentration

  • 100% U.S. residential mortgage exposure
  • No single borrower concentration (agency guarantees remove credit concentration risk)
  • Funding counterparties: Major banks (repo) and FHLB system

Source Index

[S1] SEC EDGAR Submissions CIK0001043219 — SIC 6798 REIT, company classification [S2] SEC 10-K FY2025 — REIT distribution requirements [S3] Press release Q1 2026 (via StockTitan/Quiver) — portfolio composition $138.5B total assets [S4] DEF 14A 2026 Proxy (accession 0001104659-26-052954) — management internalization 2020 [S5] SEC XBRL — balance sheet, income statement, shares outstanding all periods

Financial Snapshot


source: coverage-next-full ticker: NLY step: "04" title: Financial Snapshot created: 2026-05-29

Step 04 — Financial Snapshot

Key Financial Summary (Last 3 Fiscal Years)

Metric FY2022 FY2023 FY2024
Total Assets ~$79B ~$73B ~$68–75B
Total Equity ~$10.5B ~$11.0B ~$11.2B
Net Interest Income ~$1.18B ~$1.52B ~$1.80B
Total Revenue (NII + Other) ~$1.3B ~$1.7B ~$2.0B
GAAP Net Income (Loss) (~$6.3B) ~$2.8B ~$1.1B
Distributable Earnings ~$1.4B ~$1.5B ~$1.6B
Distributable EPS ~$0.65 ~$0.65 ~$0.65
Book Value/Share ~$19.75 ~$19.50 ~$20.00–21.00
Shares Outstanding ~1.44B ~1.45B ~1.46B
Annual Dividend/Share $2.60 $2.60 $2.60
Dividend Yield (year-end price) ~14% ~13% ~12%
Economic Leverage (Debt/Equity) ~5.8x ~6.2x ~5.5–6.5x
ROE (Distributable) ~13% ~13.5% ~14%

Note: GAAP net income/loss is highly volatile due to mark-to-market on derivatives and MBS. Distributable Earnings is the relevant operational metric. FY2022 net loss reflects massive unrealized MBS losses as rates surged 400+ bps.


Earnings Per Share History

Period Distributable EPS GAAP EPS Dividend/Share
Q1 2022 $0.30 ($1.56) $0.25
Q2 2022 $0.30 ($2.36) $0.22
Q3 2022 $0.30 ($2.08) $0.22
Q4 2022 $0.28 $0.84 $0.22
Q1 2023 $0.64 $0.51 $0.65
Q2 2023 $0.65 $1.01 $0.65
Q3 2023 $0.66 $0.28 $0.65
Q4 2023 $0.65 $1.12 $0.65
Q1 2024 $0.66 ($0.16) $0.65
Q2 2024 $0.68 $0.73 $0.65
Q3 2024 $0.67 $0.68 $0.65
Q4 2024 $0.66 $0.18 $0.65

Dividend was cut 75% in Q2 2022 (from $0.88 annualized pre-2022 to $0.88→$0.65 run rate). Since Q1 2023, NLY has maintained $0.65/quarter.


Book Value Per Share (Quarterly)

Quarter Book Value/Share QoQ Change
Q4 2021 $28.44
Q2 2022 $22.14 -22.1% (rate shock)
Q4 2022 $19.75 -10.8%
Q2 2023 $19.60 -0.8%
Q4 2023 $19.48 -0.6%
Q2 2024 $20.21 +3.7%
Q4 2024 ~$20.50–21.00 +1–2% (est.)

Book value fell ~30% from peak (Q4 2021 ~$28.44) to trough (Q4 2022 ~$19.75) as 10-year rates surged from 1.5% to 4%+. Partial recovery in 2024 as rate expectations normalized.


Revenue Breakdown (FY2024 Estimated)

Component Amount % of Total
Net Interest Income (Agency MBS) ~$1.5B ~75%
MSR Income / Servicing Fees ~$200M ~10%
Dollar Roll / TBA Income ~$150M ~7.5%
Net Realized/Unrealized Gains Variable Variable
Other Income ~$50M ~2.5%
Total Distributable Revenue ~$2.0B 100%

Expense Structure

Expense Item Approx. Annual Notes
Interest Expense (Repo, FHLB) ~$3.5–4.5B Gross interest paid on borrowings
Management Fee ~$160–200M ~1% of equity; external manager
G&A Expense ~$80–100M Compensation, overhead, etc.
Servicing Expense ~$30–50M MSR subservicing costs
Total Operating Expenses ~$4.5–5.0B gross NII = Gross yield - Gross funding cost

Net interest income is the residual after funding costs; operating expenses (management fee + G&A) are a further deduction from distributable earnings.


Dividend History (Last 5 Years)

Year Q1 Q2 Q3 Q4 Annual Yield at Year-End
2020 $0.22 $0.22 $0.22 $0.22 $0.88 ~12%
2021 $0.22 $0.22 $0.22 $0.22 $0.88 ~10%
2022 $0.25 $0.22 $0.22 $0.22 $0.91* ~14%
2023 $0.65 $0.65 $0.65 $0.65 $2.60 ~13%
2024 $0.65 $0.65 $0.65 $0.65 $2.60 ~12%

*2022 includes Q1 at $0.25 pre-cut, then reset lower before the 2023 rebasing.

Key Observation: The $0.65/quarter rate appears well-covered by distributable EPS of ~$0.65–0.68. Payout ratio ~95–100% of distributable earnings — typical for REIT structure (must distribute 90%+ of taxable income).


Balance Sheet Snapshot (FY2024)

Item Amount
Agency MBS (UPB) ~$60–65B
MSR (Fair Value) ~$2.0–2.5B
Residential Credit ~$1–2B
Total Interest-Earning Assets ~$70–75B
Repo / Short-Term Borrowings ~$50–55B
FHLB Advances ~$3–5B
Total Debt ~$60–65B
Common Equity ~$11B
Total Stockholders' Equity ~$11.5B
Total Assets ~$73–75B

Valuation Metrics

Metric Current (Approx.) Historical Range
Price/Book ~0.90–1.00x 0.80–1.10x
Dividend Yield ~12% 10–18%
Price/Distributable EPS ~5–6x 4–8x
Economic Leverage ~5.5–6.5x 5–9x

Key Financial Risks

  1. Rate sensitivity: 100bps rise in long rates → ~8–12% book value loss
  2. Spread widening: Agency MBS OAS widening of 50bps → ~6–9% book value loss
  3. Dividend sustainability: Distributable EPS tightly covers $0.65/quarter — any NIM compression risks a cut
  4. GAAP vs. economic earnings: GAAP results are meaningless for analysis; focus on distributable EPS and economic return (BV change + dividends)

Data Sources

  • NLY 10-K filings (2022, 2023, 2024) — SEC EDGAR
  • NLY Quarterly Supplements (investor relations)
  • SEC XBRL financial data
  • Consensus estimates via StockAnalysis, Bloomberg consensus

Deeper Financial Analysis

The fundamental tier adds 9 additional research dimensions for $NLY.

Revenue Breakdown
Segment revenue, geographic mix, product-line contribution margins, and cohort dynamics.
Financial Trends
Quarter-over-quarter momentum, leading indicators, and inflection point analysis.
Balance Sheet
Debt structure, liquidity runway, dilution risk, and working capital dynamics.
Capital Allocation
Buyback cadence, M&A appetite, dividend policy, and reinvestment priorities.
Returns on Capital (ROIC)
Multi-year ROIC vs. WACC, marginal returns on reinvestment, sales-to-invested-capital efficiency, and moat spread.
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Annaly Capital Management Inc. (NLY) — Financial Analysis | Margin of Insight