Annaly Capital (NLY) offers a dividend yield of roughly 13%, but that payout depends on interest rates staying put. The mortgage REIT earned $0.76 per share in distributable earnings in the first quarter of 2026, covering its $0.70 per share dividend with a 92% payout ratio. Any rate hike could quickly squeeze that coverage and put the dividend at risk.
How Annaly Makes Money
Unlike traditional REITs that own physical properties, Annaly is a mortgage REIT (mREIT) that buys pools of mortgages packaged as bond-like securities. It finances those assets with short-term loans, profiting from the spread between the income from its long-term securities and its short-term borrowing costs. That spread is narrow and sensitive to rate changes.
If interest rates rise, Annaly's borrowing costs climb quickly because its loans reset frequently. But the income from its mortgage securities stays fixed, squeezing earnings. At the same time, the securities themselves lose value, hurting the company's book value. That double blow has historically led to dividend cuts.
Rising Oil Prices Add Pressure
Oil prices are climbing again as tensions flare in the Middle East, stoking inflation that already runs hotter than the Federal Reserve wants. Higher inflation could push the Fed to raise rates, perhaps as soon as its next meeting. That scenario directly threatens Annaly's ability to maintain its payout.
Past dividend history shows how volatile the payout can be. The company just raised its quarterly dividend to $0.75 per share, a level that already exceeds the first quarter's distributable earnings of $0.76. With limited headroom and a rising rate risk, investors counting on that 13% yield should be cautious.