Call Risk Ruins This Annaly Capital Management Preferred Share

Core Viewpoint - Annaly Capital Management (NLY) is considered one of the "less risky" mortgage REITs, but its common stock carries significant risk and is not recommended for buy-and-hold strategies. Preferred shares are viewed as a better option for long-term investment within the sector [1][2][10]. Group 1: Common Stock and Preferred Shares - The common stock of NLY is often outside the buy range and should be treated as a trading security rather than a long-term investment [1]. - Preferred shares, particularly NLY-I, are seen as carrying minimal risk compared to other mortgage REITs, making them a more suitable option for investors looking for stability [2][10]. - Preferred shares typically trade around $25, but can fluctuate based on credit risk and dividend rates [3]. Group 2: Pricing and Call Risk - NLY-I is currently trading at$25.87, which is above the call value of $25, creating a risk for investors if the company decides to call the shares [4][5]. - If shares are called immediately, investors could face a loss of approximately$0.71 per share, leading to a negative annualized yield-to-call of -28.6% [5][10]. - The potential for an immediate call poses a significant risk, suggesting that investors should wait for a better entry point before investing in NLY preferred shares [6][10]. Group 3: Investment Strategy - Investors are advised to avoid purchasing NLY-I at current prices due to the substantial call risk, and it may be more prudent to sell and reallocate cash until conditions improve [7][10]. - The risk of losing on preferred shares primarily arises if the company calls them, which could lead to a less favorable investment compared to alternatives like short-term Treasuries [9]. - The current neutral rating for NLY-I reflects concerns over the risk/reward profile, with a potential loss of less than 3% being a significant consideration [8].