Annaly Capital vs. MFA Financial: Which REIT is a Better Buy?

MFA Financial, Inc. (MFA) operates as a real estate investment trust in the United States. The company invests in residential mortgage assets, whole residential loans, and mortgage servicing rights-related assets. On the other hand, diversified capital manager Annaly Capital Management, Inc. (NLY) invests in and finances residential and commercial assets. The company invests in various types of agency mortgage-backed securities, non-agency residential mortgage assets, and residential mortgage loans.

With several parts of the world witnessing a resurgence of COVID-19 cases and rising concerns over the highly transmissible Omicron variant of the coronavirus, the stock market is expected to remain under pressure in the near term. Amid this situation, investors could turn toward REIT stocks to hedge their portfolios against short-term market volatility by ensuring a steady income stream. As a result, both MFA and NLY might rally.

MFA has gained 9.7% over the past nine months, while NLY has returned 0.5%. Also, MFA’s 14.8% gain over the past year is significantly higher than NLY’s 2.3% return. Moreover, MFA is the clear winner with a 13.4% gain versus NLY’s negative return in terms of year-to-date performance.

But which of these two stocks is a better buy now? Let’s find out.

Latest Developments

On September 15, 2021, MFA Board of Directors declared a regular cash dividend for the third quarter of 2021 of $0.10 per share of common stock. The dividend will be paid on October 29, 2021, to common stockholders of record on September 30, 2021. The company’s annual dividend of $0.40 translated to a 9.07% yield.

On September 10, 2021, NLY Board of Directors declared the third quarter 2021 common stock cash dividend of $0.22 per common share. This dividend is payable October 29, 2021, to common shareholders of record on September 30, 2021. Its annual dividend of $0.88 translates to a 10.54% yield.

Recent Financial Results

MFA’s net interest income increased 131.8% year-over-year to $61.82 million for the fiscal third quarter that ended September 30, 2021. The company’s net income grew 51.9% year-over-year to $132.51 million, while its EPS came in at $0.27, up 58.8% year-over-year.

NLY’s net interest income decreased 19% year-over-year to $362.53 million for the fiscal third quarter ended September 30, 2021. Its net income declined 48.6% year-over-year to $521.53 million. Also, its EPS came in at $0.34, down 51.4% year-over-year.

Past and Expected Financial Performance

MFA’s revenue grew at a CAGR of 2.1% over the past five years. Analysts expect MFA’s revenue to increase 132.7% for the quarter ending December 31, 2021, and 83.2% in fiscal 2021. The company’s EPS is expected to grow 50% for the quarter ending December 31, 2021, and 136.9% in fiscal 2021.

On the other hand, NLY’s revenue grew at a CAGR of 54.7% over the past five years. The company’s revenue is expected to decrease 12% for the quarter ending December 31, 2021, and 8.2% in fiscal 2021. Its EPS is expected to decline 13.3% for the quarter ending December 31, 2021, but grow 3.6% in fiscal 2021.

Profitability

NLY’s trailing-12-month revenue of $4.48 billion is significantly higher than MFA’s $411.51 million. However, MFA is more profitable, with a net income margin of 80.33% compared to NLY’s 63.59%.

Furthermore, MFA’s ROA of 4.14% is higher than NLY’s 3.44%.

Valuation

In terms of trailing-12-month non-GAAP P/E, NLY is currently trading at 7.14x, higher than MFA’s 6.78x. Moreover, NLY’s forward P/B ratio of 1x is higher than MFA’s 0.75x.

So, MFA is the more affordable stock.

POWR Ratings

MFA has an overall grade of B, which equates to a Buy rating in our proprietary POWR Ratings system. On the other hand, NLY has an overall grade of C, which translates to Neutral rating. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

MFA has a grade of B for Sentiment, in sync with favorable analyst sentiment. On the other hand, NLY has a C grade for Sentiment, consistent with relatively weaker analyst sentiment.

Of the 29 stocks in the REITs - Mortgage industry, MFA is ranked #2 while NLY is ranked #18.

Beyond what I’ve stated above, we have also rated the stocks for Growth, Stability, Momentum, Quality, and Value. Click here to view all the MFA ratings. Also, get all the NLY ratings here.

The Winner

As the stock market is expected to remain under pressure due to concerns over the resurgence of COVID-19 and high inflation, REITs should witness increasing investor attention because of their high dividend yields. While both MFA and NLY are expected to gain, it is better to bet on MFA now because of its better financials, higher profitability, lower valuation, and significantly higher growth estimates.

Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the REITs - Mortgage industry here.

MFA shares were unchanged in after-hours trading Monday. Year-to-date, MFA has gained 20.31%, versus a 25.48% rise in the benchmark S&P 500 index during the same period.

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

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