Opportunity #3: Bet on the spread
Annaly Capital Management, Inc. (NYSE:NLY) is a mortgage real estate investment trust. As such, the company owns, manages and finances a portfolio of real-estate related investments. If it sounds boring to you… that’s OK. Because Annaly elected to be taxed as a REIT, it’s obligated to pay 90% of its net income back to its shareholders in the form of dividends. Now it’s getting more interesting. Annaly ‘s business model is simple. It borrows money at low interest rates (thanks to the Federal Reserve) and invests it at a higher interest rate in government-guaranteed mortgages from Fannie Mae and Freddie Mac.
The difference between the rates Annaly Capital Management, Inc. (NYSE:NLY) pays to borrow and the ones it collects from its investments is called the “interest-rate spread.” Annaly has an interest rate spread of 2%. At six times leverage – or six times more debt than equity – that’s roughly a 12% return on its money. And that’s what allows it to pay out such large dividends. At a current share price of $15.20, Annaly offers the investor a hefty 12% dividend yield.
This Fool thinks dividends
High dividend checks should be the core of everyone’s portfolio. These three darlings will continue to make sure that you receive your high dividends on a steady basis. So, what exactly are you waiting for?
Shmulik Karpf has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article Buy These 3 Creative Dividend Opportunities originally appeared on Fool.com.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.