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# Annaly: a 14.6% yield, priced at book value

NLY, NYSE. Published September 25, 2026. Price as of the September 24, 2026 close.

## Verdict: HOLD at $20.60

Watchlist for new money. Annaly trades almost exactly at book value and its $3 dividend is covered by earnings. That is fair, not cheap. For a leveraged mortgage REIT the framework requires a 40% margin of safety, which puts the buy zone at $12.87 or below.

- Bear value: $14.90
- Base value: $21.46
- Bull value: $25.08
- Upside to base value: 4.2%
- Maximum buy price: $12.87
- Required margin of safety: 40%
- Probability-weighted value: $20.21 (30/50/20)
- Dividend yield: 14.6%, covered 1.05x by EAD
- Price to book value: 1.02x
- Business quality: 62/100
- Valuation score: 58/100
- Confidence: 18/25, grade B

Annaly is the largest mortgage REIT in the United States. It borrows short term, mostly through repurchase agreements, and invests in mortgage bonds, residential loans and mortgage servicing rights, then pays out almost all of what it earns. At $20.60 the shares yield 14.6%, and for nine quarters in a row the company has earned more than it paid. The question is not whether the income is real. It is how much book value risk comes with it.

At $20.60 on September 24, 2026, the shares trade 4.0% below my triangulated Base value of $21.46, an upside of 4.2%. The Bear value of $14.90 is 27.7% below the price. The required margin of safety of 40% puts the maximum buy price at $12.87. For existing holders collecting the dividend this is a hold. For new money it is a watchlist name.

Route: SF-04 REITs, adapted for a mortgage REIT: Agency mortgage-backed securities, residential credit and mortgage servicing rights. Economic classification: Standard leveraged income vehicle (7/12 on a sector-equivalent scorecard). Primary method: price to book value per share. Secondary method: price to sustainable earnings available for distribution (EAD). Values are present fair-value estimates, not 12-month price targets.

## What Annaly is

Annaly manages a $109.4 billion portfolio. $95.0 billion is Agency mortgage-backed securities, which carry a government-related credit guarantee, so the main risks there are interest rates, prepayments and the spread between mortgage yields and funding costs. Residential Credit ($10.4 billion) adds non-agency loans and securitizations, and mortgage servicing rights ($4.1 billion) tend to gain value when rates rise, partly offsetting the bond portfolio. By dedicated capital, the mix is about 57% Agency, 22% Residential Credit and 21% servicing rights.

The character of the business is evolving toward a broader housing finance platform. Servicing rights diversify rate risk; residential credit adds credit and model risk. Neither changes what Annaly fundamentally is: a leveraged spread business whose equity is marked to market.

## The latest quarter

| Q2 2026 | Result |
| --- | --- |
| Book value per share | $20.15, up 1.7% from $19.82 |
| Earnings available for distribution | $0.79 per share (Q1 $0.76), annualized EAD return on equity about 15% |
| GAAP net income | $1.06 per share, driven largely by mark-to-market gains |
| Economic return | 5.5% in the quarter, 6.9% in the first half, positive for 11 straight quarters |
| Dividend | Raised to $0.75 a quarter |
| Leverage | Economic 5.6x (Q1 5.7x), GAAP 7.4x |
| Net interest spread / margin, excluding PAA | 1.50%, up 8 basis points / 1.76% |
| Liquidity | $8.0 billion of unencumbered assets, including $5.5 billion of cash and unencumbered Agency MBS; hedge ratio 97% |

EAD rose because Agency portfolio yields increased, residential securitization volume was higher and repo funding costs fell, partly offset by lower swap income.

## Which numbers matter for a mortgage REIT

Conventional REIT measures such as funds from operations, occupancy or same-store income do not apply, and neither does corporate free cash flow. GAAP earnings swing with mark-to-market gains and losses. The hard metrics are **book value per share**, **EAD per share** (Annaly's non-GAAP measure of recurring spread earnings) and **economic return**, the change in book value plus dividends.

| Book value per share | Value |
| --- | --- |
| End of 2022 | $20.79 |
| End of 2023 | $19.44 |
| End of 2024 | $19.15 |
| End of 2025 | $20.21 |
| Q1 2026 | $19.82 |
| Q2 2026 | $20.15 |

EAD was $2.92 per share in 2025 and $1.55 in the first half of 2026. The Base case normalizes sustainable EAD at **$3.05** per share, below the $3.16 annualized Q2 run rate.

## Shares and capital raising

Shares outstanding rose from 706.97 million at the end of 2025 to 750.57 million at June 30, 2026, up 6.2% in six months. Annaly issued 42.6 million shares for about $955.7 million through its at-the-market program. For a mortgage REIT, issuing shares near or above book value can be accretive if the money is invested at attractive returns, and management says capital raised over two years added nearly $280 million of value. It remains a watch item: once issuance stops being accretive, it becomes plain dilution.

## Primary valuation: price to book value

| Scenario | Book value per share | Price to book | Value |
| --- | --- | --- | --- |
| Bear | $18.00 | 0.85x | $15.30 |
| Base | $20.50 | 1.05x | $21.53 |
| Bull | $22.00 | 1.15x | $25.30 |

The Base assumes book value edges up to $20.50 and a small premium to book, justified by a 15% EAD return on equity. The primary Base value is **$21.53**.

### Sensitivity: value per share

| Book value \ Price to book | 0.85x | 1.00x | 1.15x |
| --- | --- | --- | --- |
| $18.00 | $15.30 | $18.00 | $20.70 |
| $20.50 | $17.43 | $20.50 | $23.57 |
| $22.00 | $18.70 | $22.00 | $25.30 |

## Secondary valuation: price to EAD

| Scenario | EAD per share | Multiple | Value |
| --- | --- | --- | --- |
| Bear | $2.60 | 5.5x | $14.30 |
| Base | $3.05 | 7.0x | $21.35 |
| Bull | $3.30 | 7.5x | $24.75 |

The secondary Base value is **$21.35**.

## Historical cross-check

At $20.60 against $20.15 of book value, Annaly trades at about 1.02x book. This is not a distressed discount, and the history of book value, which fell sharply in the 2022 rate shock before recovering, argues against paying a large premium. The cross-check says roughly fair.

## Valuation triangulation

| Method | Base value | Weight |
| --- | --- | --- |
| Price to book value | $21.53 | 60% |
| Price to EAD | $21.35 | 40% |
| Triangulated Base | $21.46 | 100% |

The methods diverge by less than 1%, and both methods are applied to all three scenarios. Close agreement does not remove their common exposure to the same interest rate and spread environment.

## What is the market already pricing in?

At $20.60 the market pays about 1.02x book value and 6.5x annualized Q2 EAD, for a 14.6% dividend yield. It assumes book value holds near $20, sustainable EAD near $3 and continued dividend coverage. At the Base premium of 1.05x, the price implies book value of about $19.62; at 7x EAD, it implies sustainable EAD of about $2.94. The market is not pricing a crisis, and it is not pricing much upside either.

## Bear, base and bull scenarios

|  | Bear | Base | Bull |
| --- | --- | --- | --- |
| Probability | 30% | 50% | 20% |
| Book value / price to book | $18.00 / 0.85x | $20.50 / 1.05x | $22.00 / 1.15x |
| EAD / multiple | $2.60 / 5.5x | $3.05 / 7.0x | $3.30 / 7.5x |
| Book value method / EAD method | $15.30 / $14.30 | $21.53 / $21.35 | $25.30 / $24.75 |
| Triangulated value | $14.90 | $21.46 | $25.08 |
| vs $20.60 | -27.7% | +4.2% | +21.7% |

**Bear:** a rate or spread shock cuts book value to $18, spreads compress and the market demands a discount to book. Lowering both book value and the multiple is justified only in a true liquidity or spread shock, which is exactly what the Bear describes. **Base:** spreads stay favorable, book value edges higher and EAD covers the dividend. **Bull:** strong spreads and a persistent premium to book.

The probability-weighted value is **$20.21**, 1.9% below the price. Dividends are on top of these values: at the current rate, a holder receives about $3 a year.

## How the buy price is set

Confidence B starts at a 30% margin of safety. Five points are added for leverage and five for rate and model complexity, for 40%. A 40% discount to the $21.46 Base gives a **maximum buy price of $12.87**, about 0.64x current book value. Mortgage REITs reach such levels only in serious market stress, which is exactly when the protection matters.

## Dividend

The quarterly dividend is $0.75, or $3.00 a year, a 14.6% yield. Q2 EAD covered it 1.05x and first-half EAD of $1.55 covered first-half dividends of $1.45 about 1.07x. The board has declared a third-quarter dividend of $0.75, payable October 30, 2026. The dividend is covered today, but the buffer is thin, and mortgage REIT dividends are not bond-like: after the 2022 rate shock Annaly cut its quarterly dividend from $0.88 to $0.65 in 2023, before raising it again to $0.70 and now $0.75.

## Reasons to own NLY

- **High covered income.** A 14.6% yield, covered by EAD for nine straight quarters.
- **Improving spreads.** Net interest spread rose 8 basis points and repo costs fell.
- **Diversification.** Agency, residential credit and servicing rights respond differently to rates.
- **Risk management.** A 97% hedge ratio, $8 billion of unencumbered assets and moderate economic leverage of 5.6x.
- **Scale.** The largest platform in its sector, with strong access to funding and securitization markets.

## What could go wrong?

- **Book value destruction.** A sharp move in rates or mortgage spreads can erase years of economic return, as in 2022. Sustained book value erosion with EAD below the dividend is the main thesis breaker.
- **Funding.** Short-term repo financing brings margin call and liquidity risk in stressed markets.
- **Dividend cut.** A thin coverage buffer leaves little room if spreads narrow.
- **Dilution.** Share issuance must stay accretive to book value per share.
- **Credit and valuation models.** Residential credit and servicing rights add credit and model risk.

## Management execution

Management has kept economic leverage controlled, hedged conservatively, built out the servicing and credit platform and delivered a 20.2% economic return in 2025, followed by solid first-half 2026 EAD and book value. The red flag is the broad use of at-the-market issuance, which must keep proving per-share accretion. Management credibility scores **14/20**, good.

## Stock Analyza scorecard

| Business quality | Score |
| --- | --- |
| Franchise and scale | 14/20 |
| Return versus cost of capital | 13/20 |
| Resilience | 10/15 |
| Metric quality | 9/15 |
| Growth runway | 7/15 |
| Management | 6/10 |
| Alignment | 3/5 |
| Total | 62/100 |

The valuation score is **58/100**: the methods agree closely, but the price sits close to Base and far above the buy zone.

| Economic classification (sector-equivalent) | Points |
| --- | --- |
| Economic return | 1/2 |
| Book value plus dividends | 1/2 |
| EAD economics | 1/2 |
| Balance sheet | 1/1 |
| Spread and hedging | 1/1 |
| Recurring franchise | 1/2 |
| Runway | 1/2 |
| Total: Standard leveraged income vehicle | 7/12 |

## Confidence score

| Confidence | Score |
| --- | --- |
| Data quality | 5/5 |
| Predictability | 3/5 |
| Valuation robustness | 4/5 |
| Accounting transparency | 3/5 |
| Scenario dispersion | 3/5 |
| Total | 18/25, grade B |

## What I would watch from here

### Green

- Book value per share of $19.75 or more
- EAD of $0.75 or more a quarter
- Dividend coverage of 1.05x or more
- Economic leverage at or below 6.0x
- Hedge ratio of 85% or more
- Net interest spread excluding PAA of 1.4% or more

### Yellow

- Book value per share of $18.50 to $19.75
- EAD of $0.65 to $0.75
- Dividend coverage of 0.9x to 1.05x
- Economic leverage of 6.0x to 6.5x
- Hedge ratio of 70% to 85%
- Spread of 1.0% to 1.4%

### Red

- Book value per share below $18.50
- EAD below $0.65
- Dividend coverage below 0.9x
- Economic leverage above 6.5x
- Hedge ratio below 70%
- Spread below 1.0%

Also worth tracking every quarter: share issuance relative to book value, liquidity and margin call capacity, residential credit performance and servicing rights valuations. The next review point is Q3 2026 results.

## The three most important thesis breakers

1. Book value destruction from a rate or spread shock.
2. EAD falling below the dividend.
3. Liquidity or funding stress.

## Adversarial review

The first draft's arithmetic reconciled: both valuation methods, the triangulation, the sensitivity table, the buy price and the yield and coverage figures. One number was wrong. Its probability-weighted value was stated as $19.18, while its own scenarios and probabilities give $20.21. The conclusion that the weighted value sits slightly below the price still holds. The draft also suggested a practical monitoring zone of about $17 to $18.50, outside the framework's buy price rule; it was dropped. The verdict is unchanged.

The strongest counter-argument is that a 14% yield plus a 15% EAD return on equity can justify a persistent premium to book value while spreads stay favorable. That is reflected in the Bull case at 1.15x book. Leverage and the historical volatility of book value make a large persistent premium unsafe as the Base.

| Robustness check | Result |
| --- | --- |
| Price to book | 1.02x |
| Price to annualized Q2 EAD | 6.52x |
| Dividend yield | 14.56% |
| Q2 dividend coverage | 1.05x |
| Base at 1.00x book instead of 1.05x | $20.84 |
| Base at 1.10x book | $22.07 |

The publication gate status is PASS\_WITH\_WARNING, because forward book value and EAD are inherently sensitive to interest rates.

## Final verdict: hold at $20.60, watchlist for new money

Annaly is priced fairly for what it is: a well-run, leveraged income vehicle. The 14.6% yield compensates for leverage, funding, duration and book value risk, but the price offers only about 4% of valuation upside before dividends.

**Verdict: HOLD at $20.60, WATCHLIST for new money. Triangulated Base value $21.46, upside 4.2%, Confidence B (18/25). Required margin of safety 40%, maximum buy price $12.87.**

For an existing holder, the covered dividend supports holding while book value stays stable. New money waits for $12.87 or below, or for a meaningful discount to book value without deterioration in EAD or liquidity.

The main thesis breaker is sustained book value erosion combined with EAD falling below the dividend.

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## Sources

Primary sources include Annaly's [Q2 2026 results](https://www.sec.gov/Archives/edgar/data/0001043219/000104321926000052/a2026q2nlyex991.htm), the [Q2 2026 earnings release](https://investor.annaly.com/~/media/Files/A/Annaly-V3/documents/q2-2026-earnings-release.pdf), the Q2 2026 Form 10-Q and the 2025 Form 10-K, plus [the Q2 2026 earnings call](https://www.benzinga.com/news/26/07/60608135/annaly-capital-management-q2-2026-earnings-call-transcript). The market price comes from market data reporting.

The reference market price is $20.60, the September 24, 2026 close. Balance sheet figures are as of June 30, 2026. Forward book value and EAD are estimates.

**Disclaimer.** This analysis is provided solely for research and educational purposes. It is not personalized investment, financial, legal or tax advice. Values are estimates, not forecasts or trading instructions. Annaly is leveraged and exposed to interest rates, mortgage spreads, funding markets, credit and dividend cuts, and its book value can fall sharply. Investors can lose part or all of their invested capital.

Framework: SF-04 adapted for mortgage REITs. Economic class: Standard leveraged income vehicle. Engine: STANDARD, price to book with EAD cross-check. Confidence: B/18. Data status: PASS. Adversarial gate: PASS\_WITH\_WARNING. Version: Master v3.1.