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This 13%-Yielding Dividend Is on Very Shaky Ground
Annaly Capital Management (NYSE: NLY) offers an alluring dividend. At over 13%, its yield is 10 times higher than the S&P 500‘s. With that higher reward potential comes a higher risk profile.
That risk is apparent when taking a closer look at the mortgage REIT’s third-quarter results. Here’s the key number that puts its high-yielding dividend at a high risk for another reduction.
Annaly Capital Management reported $0.66 per share of earnings available for distribution (EAD) during the third quarter, which is money it could pay out in dividends. That was only slightly above its quarterly dividend payment of $0.65 per share. Its EAD was flat with the year-ago period and down from $0.68 per share in the second quarter.
On the one hand, Annaly is currently earning more than its dividend. However, its EAD has fallen steadily over the years, which has led the company to make a series of dividend cuts.
For example, its EAD fell from $0.89 per share at the end of 2022 to $0.81 during the first quarter of 2023. That decline led the REIT to reduce its dividend payment from $0.88 per share to its current level of $0.65. That was one of the many dividend cuts the company has made over the years:
If Annaly’s EAD falls any further, the REIT would likely need to reset its dividend to a lower level again.
While its EAD has fallen precariously close to its current dividend level, some positives suggest that the company might be able to maintain its payout in the coming quarters. For example, the REIT earned enough money to cover its dividend even though it employed less leverage during the quarter. Its economic leverage ratio was 5.7 times, down from 5.8 last quarter and 6.4 in the year-ago period.
Meanwhile, the market conditions for agency mortgage-backed securities (MBS) — pools of mortgages protected from credit risk by government agencies like Fannie Mae — are improving. Annaly CEO David Finkelstein said in the earnings press release, “Agency MBS benefited from the onset of the Federal Reserve’s rate cutting cycle.”
Because of that, he said, the REIT was “able to deploy equity capital raised during the quarter into the sector, given attractive new money returns.” That positions it to make more money.
The CEO also said that “our whole loan correspondent channel continues to generate record production with exceptional credit quality, and our differentiated MSR [mortgage servicing rights] portfolio has consistently performed ahead of expectations.”
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UK based foreign exchange brand Travelex has announced that the company has undertaken a major expansion in the UAE, with the launch of 13 new stores across Abu Dhabi and Dubai airports.
At Zayed International Airport, Travelex is doubling its store footprint from seven to 14 stores, including six new on-the-move kiosk (OTM) locations at arrivals baggage, airside departures and pre-immigration, and one new traditional landside store. The new landside store will offer both a cash management service that will enable the airport’s businesses to process cash, as well as traditional consumer cash services, including access to 62 currencies.
Travelex initially entered Zayed International Airport in late 2023 with seven stores and eight ATMs. The new stores reflect the growing passenger demand and customer requirements of the UAE’s newest airport. As a dominant force in the capital’s aviation sector, Zayed International Airport rapidly affirmed itself as a key hub for air travel, solidifying its position as a vital player in the global travel landscape.
At Dubai International (DXB), Travelex is in the process of launching six new stores across all three terminals, including new traditional stores and stores upgraded from OTMS. Two ATMS dispensing AED were also installed at Terminal 3 Arrivals earlier this year. DXB has also seen a considerable post-pandemic growth in pax numbers, reinforcing its status as a leading hub for international travel.
The 13 new stores across Abu Dhabi and Dubai means Travelex will be operating 60 locations across the country. The latest IATA figures show that Middle Eastern airlines saw a 9.6% year-on-year increase in demand for June 2024, while capacity increased 9.4% year-on-year.
Batu Dölay, Managing Director, Travelex Middle East and Türkiye said:
“We’re delighted to be expanding our presence at two of the most exciting and dynamic airports in the world. This investment reflects the growing global reach and passenger numbers of our UAE airport partners, and our commitment to providing even greater access to international travel money than ever before.”
About Travelex
Founded in 1976 Travelex has grown to become one of the market leading specialist providers of foreign exchange products, solutions, and services, operating across the entire value chain of the foreign exchange industry in more than 20 countries. We have developed a growing network of ATMs and stores in some of the world’s top international airports, major transport hubs, premium shopping malls and city centres.
Travelex has built a growing online and mobile foreign exchange platform, and we also process and deliver foreign currency orders for major banks, travel agencies, supermarkets and hotels worldwide. In addition, we source and distribute sizeable quantities of foreign currency banknotes for customers on a wholesale basis – including central banks and international financial institutions. We also offer a range of remittance and international money transfer products around the world.
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