Is Annaly Capital Management the Overlooked Income Powerhouse?

As market attention remains fixed on Federal Reserve policy, one US mortgage financier is demonstrating how to produce consistent returns during periods of economic uncertainty. Annaly Capital Management has delivered a surprisingly robust quarterly performance that challenges skeptical investors. Could the mortgage REIT sector become the next unexpected opportunity for income-focused portfolios?

A significant shift in market sentiment became evident in October, when short interest against Annaly shares plummeted by 36.5 percent. With only 9.88 million shares held in bearish positions against the mortgage specialist, and a days-to-cover ratio of just 1.4 days, downward pressure has substantially diminished.

Institutional investors are establishing new positions. Envestnet Asset Management increased its stake by 5.2 percent, while Advisors Preferred LLC initiated completely new positions in the company. The appeal is clear: Annaly offers a substantial 13 percent dividend yield with quarterly distributions of $0.70 per share, presenting compelling income potential even in richly valued markets.

Quarterly Performance Exceeds Expectations

Annaly's third quarter 2025 results surpassed many projections. The company maintained stable Earnings Available for Distribution (EAD) of $0.73 per share, demonstrating reliable cash flow generation. More impressively, GAAP net income surged to $1.21 per share. Economic returns of 8.1 percent for the quarter and 11.5 percent year-to-date highlight operational strength.

Should investors sell immediately? Or is it worth buying Annaly Capital Management?

The company secured substantial new capital during the period, raising a total of $1.1 billion through $823 million in common stock offerings and $275 million in preferred share issuances. These capital raises occurred at attractive terms, reflecting market confidence in Annaly's strategy.

Strategic Positioning for Future Growth

With $8.8 billion in liquid assets and an expanded agency portfolio valued at $87 billion, Annaly possesses significant financial capacity for additional acquisitions. The strategic emphasis on higher-yielding mortgage securities (6% and 6.5% coupons) should provide further margin support.

Interest rate sensitivity remains the primary challenge. Should the Federal Reserve maintain accommodative policies or implement rate reductions, Annaly could benefit through both higher valuations and improved refinancing conditions.

The broader question for investors is whether the mREIT sector can permanently shed its reputation as a victim of interest rate volatility. For Annaly, the evidence appears increasingly convincing.