American Capital Agency Corp. (AGNC), Capstead Mortgage Corporation (CMO): 3 Reasons to Sell Annaly Capital Management, Inc. (NLY)

Times are still tough for agency mortgage REITs such as Annaly Capital Management, Inc. (NYSE:NLY) , but a healing economy, rising mortgage rates, and whispers regarding an eventual end to the Federal Reserve’s quantitative easing program have spurred investors to send Annaly Capital Management, Inc. (NYSE:NLY)’s stock higher over the past week or so.

American Capital Agency Corp. (NASDAQ:AGNC)

Is it time to buy in? There are a few headwinds here, some that are part and parcel of investing primarily in agency paper, and at least one that is of Annaly’s own making. Here are three issues that investors considering a stake in Annaly Capital Management, Inc. (NYSE:NLY) should take under advisement — and might very well cause current investors to think about selling.

Management shakeup seems dicey
This spring, Annaly management will ask its shareholders to vote on a new management setup, which will change the current method of management by insiders to one that is carried out by an external company. As management points out, this is not uncommon in the mREIT universe. However, there are a couple of things that stockholders should be aware of that make this idea look less enticing for investors.

One confusing aspect is the makeup of the new management entity — which will consist of Annaly Capital Management, Inc. (NYSE:NLY)’s current management. This seems a bit strange, to say the least, and here’s another thorny issue: Analysts note that, if the change goes through, management’s pay will no longer be disclosed. In the current climate of increased calls for transparency and stockholder say-on-pay, this aspect looks very fishy.

Dwindling dividends and a shrinking spread
Annaly is well known for paying out excellent dividends, but that hasn’t been the case for some time. Over the past two years, Annaly’s dividend has been on a downward spiral, with the most current quarterly payout sitting at $0.45. Compared to other agency players, like American Capital Agency Corp. (NASDAQ:AGNC), which has paid out its juicy $1.25 dividend for the past five quarters, and Capstead Mortgage Corporation (NYSE:CMO) which actually raised its payout by one penny for the first quarter of this year, Annaly Capital Management, Inc. (NYSE:NLY) looks like it is losing ground.