Annaly Capital Management, Inc. (NLY), American Capital Agency Corp. (AGNC): REITs Are a Good Idea for at Least Two Years

The other good agency REIT

If you are looking for a strong dividend investment, then go with American Capital Agency Corp. (NASDAQ:AGNC). Annaly is my preference, because it has not done as well and is shaking things up. American Capital, on the other hand, has an epic dividend yield of 15.10%. Also, the 3-year return on the stock is 21%, versus Annaly Capital Management, Inc. (NYSE:NLY)’s (15)% 3-year return. Is this REIT just run better than Annaly, or perhaps, it is just a delayed effect compared to Annaly? For now, the facts are that American Capital Agency Corp. (NASDAQ:AGNC) is not cutting its dividend. There was one decline in early 2012, but Annaly has had more cuts.

American Capital is a pure play on mortgage REITs like Annaly. However, Annaly is aiming to become a hybrid with the addition of CreXus. It seems to be a good move for now, but you can never be sure. Also, it is not for sure that it will take CreXus. American Capital seems like the better choice if you are more skittish. Also, if you do not like betting that a change-up in the business will benefit Annaly Capital Management, Inc. (NYSE:NLY), then go with American Capital.

American Capital Agency Corp. (NASDAQ:AGNC) seems able to shrug off the issues Annaly is facing and offer its high yield, because it deploys more leverage than Annaly. However, the difference in the amount of leverage has been changing. American Capital’s leverage is declining, while Annaly’s has been increasing. One of the biggest things on the risk-side that differentiated the two companies is disappearing, and yet American Capital offers the better yields and stock performance. I consider Annaly Capital Management, Inc. (NYSE:NLY) the riskier play, even though in the past American Capital was considered riskier due to its leverage.

Putting it all together

It comes down to your specific strategy. If you are the quintessential dividend investor, then American Capital Agency Corp. (NASDAQ:AGNC) is your choice. However, if you look for companies that are shaking things up after showing some weakness, a.k.a turnaround stocks, then go with Annaly Capital Management, Inc. (NYSE:NLY).

The article REITs Are a Good Idea for at Least Two Years originally appeared on Fool.com and is written by Nihar Patel.

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