Comparing Two Dividend Stocks: W.P. Carey versus Annaly Capital Management
In the realm of Real Estate Investment Trusts (REITs), two prominent players, Annaly Capital Management and W.P. Carey, stand out for their distinct business models and growth strategies.
Annaly Capital Management, a Mortgage REIT, primarily invests in mortgage-backed securities (MBS), mortgage servicing rights (MSRs), residential credit, and some commercial real estate. Its income depends on interest rate arbitrage—borrowing at short-term rates to invest in longer-term mortgage assets. This strategy, while offering a high yield of around 12.75%, is sensitive to interest rates and prepayment risk, making it subject to market volatility and Federal Reserve policy changes.
On the other hand, W.P. Carey, a Net Lease REIT, owns physical commercial properties leased on a net-lease basis where tenants pay most property expenses, providing stable, contractual rental income. The company's portfolio is diversified across industries with high occupancy (~80%), reducing operational risk and providing inflation protection for long-term steady income.
Annaly Capital Management's growth strategy is focused on diversifying across agency MBS, MSRs, and residential credit, enabling flexibility to shift capital based on market conditions. It seeks growth in non-agency residential mortgage assets and whole loan markets, aiming to expand private sector mortgage finance. In contrast, W.P. Carey grows primarily through acquisitions of industrial, logistics, and other inflation-resistant properties aligned with secular trends like e-commerce growth.
While Annaly Capital Management increased its dividend at the start of 2025, W.P. Carey's dividend is less likely to be variable over time compared to Annaly's. This is due to W.P. Carey's more traditional REIT business model, which is designed to grow the dividend over time. Notably, W.P. Carey cut its dividend in late 2023, but has since increased it every quarter since.
The risk profiles of these two REITs also differ significantly. Annaly Capital Management's debt-heavy leverage and rate sensitivity can cause earnings and dividend volatility, making it more vulnerable to market fluctuations. In contrast, W.P. Carey's business model pairs tangible assets with contractual lease income, reducing volatility and providing inflation protection for long-term steady income.
For investors seeking a more stable dividend, W.P. Carey's 5.6% yield, while lower than Annaly's 14%, may be more suitable. The higher yield of Annaly Capital Management may not be sustainable for those living off the dividends their portfolio generates, as the total return of Annaly Capital Management has been impressive, but the dividend and stock price have both decreased over time.
In conclusion, Annaly’s model centers on leveraging interest rate spreads in mortgage securities with a diversified, flexible investment approach but with inherent market and rate risks leading to dividend volatility. W.P. Carey, on the other hand, focuses on stable, long-term rental income from net-leased commercial real estate, emphasizing portfolio diversification and inflation resistance to support steady dividend growth. This contrast reflects mortgage REITs' higher-risk, higher-yield profile versus net lease REITs' more conservative, income-growth-oriented strategy.
[1] Annaly Capital Management (NLY) and W.P. Carey (WPC) are two distinct REITs operating in different sectors with different growth strategies and risk profiles. [2] Annaly Capital Management primarily invests in mortgage-backed securities, mortgage servicing rights, residential credit, and some commercial real estate, while W.P. Carey owns physical commercial properties leased on a net-lease basis. [3] Annaly Capital Management's business model is sensitive to interest rates and prepayment risk, and it uses leverage to increase interest income. W.P. Carey's business model is less sensitive to macroeconomic volatility with conservative leverage (1.2x debt-to-equity). [4] Annaly Capital Management's dividend is high yield but volatile, while W.P. Carey's dividend is more stable and designed to grow over time.
- In managing their investment strategies, Annaly Capital Management prioritizes mortgage-backed securities, mortgage servicing rights, and mortgage finance, utilizing interest rate arbitrage for income and growth. On the other hand, W.P. Carey focuses on the acquisition of net-leased commercial properties, providing stable real-estate related finance and income in a more conservative manner.
- Annaly Capital Management's business model presents higher risks due to its debt-heavy leverage and sensitivity to interest rates. Meanwhile, W.P. Carey's approach pairs tangible assets with contractual lease income, offering a more stable investment and inflation protection.
- For investors seeking a steady income growth with moderate returns, W.P. Carey's 5.6% yield may be a more suitable option compared to Annaly Capital Management's higher yield of around 14%, which carries higher market and rate risks.
