Annaly Capital Management, Inc.

What they do

Annaly is an internally-managed REIT that uses borrowed funds to invest primarily in real estate-related assets, earning the spread between asset yields and borrowing/hedging costs. Its three investment groups are the Annaly Agency Group (Agency MBS), Annaly Residential Credit Group (non-Agency residential whole loans and securitized products), and Annaly Mortgage Servicing Rights Group (MSR). The company aims to generate net income for distribution to stockholders and optimize returns through prudent risk management.

Revenue drivers

• Agency Group — Invests in Agency MBS guaranteed by Fannie Mae, Freddie Mac, or Ginnie Mae, plus complementary Agency commercial MBS. As of Q2 2026, the Agency portfolio was $95.0 billion, representing 57% of dedicated capital.
• Residential Credit Group — Invests primarily in non-Agency residential whole loans and securitized products. Portfolio was $10.4 billion at Q2 2026, representing 22% of dedicated capital, with record securitization activity.
• Mortgage Servicing Rights Group — Invests in MSR, earning fees for servicing residential mortgage loans. MSR portfolio was $4.1 billion in market value at Q2 2026, representing 21% of dedicated capital; Onslow Bay is the fifth largest non-bank servicer of Agency MBS.

Recent performance

In Q2 2026, Annaly reported GAAP net income of $1.06 per average common share and earnings available for distribution (EAD) of $0.79 per share. Economic return for the quarter was 5.5%, bringing the first-half 2026 economic return to 6.9%. Book value per common share was $20.15, and the company increased its quarterly common stock dividend to $0.75 per share, marking the ninth consecutive quarter EAD exceeded the dividend. GAAP leverage was 7.4x (up from 7.3x) and economic leverage was 5.6x (down from 5.7x). For full-year 2025, net income was $2.05 billion on diluted EPS of $2.92, with dividends per share of $2.80.

Strategy

The company is focused on growing its Agency portfolio, investing accretive capital raised through its at-the-market program into higher coupon TBA securities and specified pools. It maintains a conservative hedge positioning, ending Q2 2026 with a 97% hedge ratio, primarily adding swap exposure across tenors. The Residential Credit business is expanding its whole loan correspondent channel and securitization platform, having issued thirteen securitizations totaling $6.8 billion in Q2 2026. Financing capacity was increased by $740 million through expanded credit facilities, with total warehouse capacity of $8.3 billion across Residential Credit and MSR businesses.

Risks

• Interest rate risk — Changes in interest rates can adversely affect the value of Annaly's MBS and other investments, as well as the cost of financing and hedging activities.
• Liquidity and funding risk — The company relies on borrowed funds and may face difficulty meeting obligations or obtaining adequate funding under adverse market conditions, despite maintaining unencumbered assets.
• Credit risk — Borrowers on non-Agency loans or MSR-related mortgages may default, leading to losses on Annaly's residential credit and MSR portfolios.
• Tax-related risks — As a REIT, certain distributions to tax-exempt investors may be classified as unrelated business taxable income, and the company may pay dividends in stock, which could expose stockholders to taxes on dividends in excess of cash received.

Outlook

Management sees meaningful opportunities across all three investment strategies, citing scale, liquidity, and disciplined capital allocation as supporting compelling risk-adjusted returns. The Fed ended its securities portfolio decline in December 2025 and began purchasing Treasury bills at $40 billion per month, which could support fixed income markets. Interest rates are close to levels where monetary policy is no longer deemed restrictive, and management expects a more gradual Fed approach going forward, contingent on economic data. The company intends to continue raising accretive capital and expanding its platform to drive earnings growth.