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Annaly vs. Starwood: Which Mortgage REIT Offers More Resilience Now?
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Key Takeaways
NLY's diversified portfolio and MSR growth position it for improved returns as mortgage rates decline.
STWD has optimized its portfolio via major property sales but faces liquidity pressure from high debt.
NLY trades at a discount with upward earnings revisions, while STWD trades at a premium.
Both Annaly Capital Management (NLY - Free Report) and Starwood Property Trust, Inc. (STWD - Free Report) are mortgage real estate investment trusts (mREITs) that invest in mortgage-backed and other real estate-related securities. Both REITs are exposed to the same macroeconomic risks but differ in their portfolio strategies and risk profiles.
But which one offers the better opportunity for investors right now? Let us break down the strengths, risks and growth potential of NLY and STWD.
The Case for Annaly
NLY's investment strategy is driven by the prudent selection of assets and effective capital allocation to achieve stable returns. The strategy includes traditional Agency MBSs, which provide downside protection, and investments in more non-agency and credit-focused asset classes that enhance returns.
A scaled mortgage servicing rights (MSR) platform will continue to benefit from a low prepayment environment. The company is focusing on improving its capabilities by acquiring newly originated MSRs from its partner network, which will continue to provide a strong advantage in expanding its MSR business. As of March 31, 2025, its investment portfolio aggregated $84.9 billion.
As mortgage rates are witnessing a declining trend lately, purchase originations and refinancing activities are improving. Hence, NLY will likely witness book value improvement in the coming period as spreads in the Agency market tighten, driving asset prices. This should boost net interest spread, improving the portfolio's overall yield. This is expected to support the company’s financials in the upcoming period.
Annaly is focused on improving its liquidity and reducing leverage to support capital distribution activities. By the end of the first quarter of 2025, the company had $7.5 billion in total assets available for financing, including cash and unencumbered Agency mortgage-backed securities (MBS) of $4.7 billion, which can readily provide liquidity in times of adverse market conditions.
NLY has a record of paying out monthly dividends, currently yielding a staggering 14.6%. It presently sits at a payout ratio of 101%. In March, the company announced a cash dividend of 70 cents per share, marking a 7.7% hike from the prior payout. This move reflects confidence in its cash flow and growth prospects.
The Case for Starwood
STWD’s investment strategy includes investment in commercial mortgage-backed securities (CMBS) and related commercial real estate assets, with a diversified portfolio of $1.02 billion as of March 31, 2025. This allows it to generate stable income streams while capitalizing on market opportunities. The company’s asset management expertise and ability to navigate the complexities of the CMBS market contribute to its strong market position and growth potential.
Starwood has been engaged in acquisitions and divestitures to optimize its portfolio. In February 2024, the company sold 16 retail properties in its Master Lease Portfolio for $387.1 million, recognizing a gain of $92 million. Additionally, it sold an operating property within its Real Estate Investment and Services Equity Portfolio for $18.2 million, with a gain of $8.3 million, reflecting continued portfolio optimization.
The company also sold residential units in a New York conversion project, totaling $12.1 million in proceeds, though with no gain or loss recognized. Meanwhile, there were no significant acquisitions recently, aside from properties acquired through loan foreclosure. This strategy of selective sales and reinvestments supports the company's ongoing focus on enhancing its portfolio.
However, Starwood Property’s weak liquidity position is concerning. As of March 31, 2025, the company had cash and cash equivalents of $692 million. Its long-term debt was $18.4 billion. This can be concerning if the macroeconomic situation worsens.
The company pays out a quarterly dividend of 48 cents currently. It has a dividend yield of 9.5% with a payout ratio of 108%. Over the last five years, STWD did not increase its dividend.
Over the past year, shares of Starwood and Annaly have risen 13.7% and 11.8%, respectively, compared with the industry’s growth of 5.2%.
Price Performance
Image Source: Zacks Investment Research
In terms of valuation, STWD is currently trading at a 12-month forward price-to-earnings (P/E) of 10.87X, higher than its five-year median of 10.58X. Alternatively, the NLY stock is currently trading at a 12-month forward P/E of 6.65X, which is lower than its five-year median of 7.27X.
Price-to-Earnings F12M
Image Source: Zacks Investment Research
NLY is trading at a discount compared with the industry average of 7.96X, while STWD is trading at a premium. Hence, Annaly is a better choice for value investors.
How Do Estimates Compare for Annaly & Starwood?
The Zacks Consensus Estimate for NLY’s 2025 and 2026 earnings reflects a year-over-year rise of 6.3% and 1.4%, respectively. The Zacks Consensus Estimate for Annaly’s 2025 and 2026 earnings has been revised upward over the past 60 days, suggesting a bullish outlook from analysts.
NLY Estimates Revision Trend
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for STWD’s 2025 earnings suggests a year-over-year decline of 10.9%, while that for 2026 indicates a rise of 7.8%. The Zacks Consensus Estimate for STWD’s 2025 and 2026 earnings has been revised downward over the past 60 days, suggesting a more cautious outlook from analysts.
STWD Estimates Revision Trend
Image Source: Zacks Investment Research
STWD or NLY: Which Offers Better Value?
While both Annaly and Starwood offer attractive dividend yields and operate in the same broader mREIT sector, NLY stands out as the more resilient and better-valued option for now. Its focus on lower-risk Agency MBS, a growing mortgage servicing rights platform, improved liquidity and positive earnings momentum provide a stronger foundation for long-term growth.
In contrast, STWD’s heavier exposure to commercial real estate, higher debt levels and downward earnings revisions make it a riskier choice for now.
For investors looking for stable income with lower risk, Annaly offers the more compelling opportunity right now.
At present, Annaly carries a Zacks Rank #3 (Hold), while Starwood carries a Zacks Rank of 4 (Sell).
Image: Bigstock
Annaly vs. Starwood: Which Mortgage REIT Offers More Resilience Now?
Key Takeaways
Both Annaly Capital Management (NLY - Free Report) and Starwood Property Trust, Inc. (STWD - Free Report) are mortgage real estate investment trusts (mREITs) that invest in mortgage-backed and other real estate-related securities. Both REITs are exposed to the same macroeconomic risks but differ in their portfolio strategies and risk profiles.
But which one offers the better opportunity for investors right now? Let us break down the strengths, risks and growth potential of NLY and STWD.
The Case for Annaly
NLY's investment strategy is driven by the prudent selection of assets and effective capital allocation to achieve stable returns. The strategy includes traditional Agency MBSs, which provide downside protection, and investments in more non-agency and credit-focused asset classes that enhance returns.
A scaled mortgage servicing rights (MSR) platform will continue to benefit from a low prepayment environment. The company is focusing on improving its capabilities by acquiring newly originated MSRs from its partner network, which will continue to provide a strong advantage in expanding its MSR business. As of March 31, 2025, its investment portfolio aggregated $84.9 billion.
As mortgage rates are witnessing a declining trend lately, purchase originations and refinancing activities are improving. Hence, NLY will likely witness book value improvement in the coming period as spreads in the Agency market tighten, driving asset prices. This should boost net interest spread, improving the portfolio's overall yield. This is expected to support the company’s financials in the upcoming period.
Annaly is focused on improving its liquidity and reducing leverage to support capital distribution activities. By the end of the first quarter of 2025, the company had $7.5 billion in total assets available for financing, including cash and unencumbered Agency mortgage-backed securities (MBS) of $4.7 billion, which can readily provide liquidity in times of adverse market conditions.
NLY has a record of paying out monthly dividends, currently yielding a staggering 14.6%. It presently sits at a payout ratio of 101%. In March, the company announced a cash dividend of 70 cents per share, marking a 7.7% hike from the prior payout. This move reflects confidence in its cash flow and growth prospects.
The Case for Starwood
STWD’s investment strategy includes investment in commercial mortgage-backed securities (CMBS) and related commercial real estate assets, with a diversified portfolio of $1.02 billion as of March 31, 2025. This allows it to generate stable income streams while capitalizing on market opportunities. The company’s asset management expertise and ability to navigate the complexities of the CMBS market contribute to its strong market position and growth potential.
Starwood has been engaged in acquisitions and divestitures to optimize its portfolio. In February 2024, the company sold 16 retail properties in its Master Lease Portfolio for $387.1 million, recognizing a gain of $92 million. Additionally, it sold an operating property within its Real Estate Investment and Services Equity Portfolio for $18.2 million, with a gain of $8.3 million, reflecting continued portfolio optimization.
The company also sold residential units in a New York conversion project, totaling $12.1 million in proceeds, though with no gain or loss recognized. Meanwhile, there were no significant acquisitions recently, aside from properties acquired through loan foreclosure. This strategy of selective sales and reinvestments supports the company's ongoing focus on enhancing its portfolio.
However, Starwood Property’s weak liquidity position is concerning. As of March 31, 2025, the company had cash and cash equivalents of $692 million. Its long-term debt was $18.4 billion. This can be concerning if the macroeconomic situation worsens.
The company pays out a quarterly dividend of 48 cents currently. It has a dividend yield of 9.5% with a payout ratio of 108%. Over the last five years, STWD did not increase its dividend.
NLY & STWD: Price Performance & Valuation Analysis
Over the past year, shares of Starwood and Annaly have risen 13.7% and 11.8%, respectively, compared with the industry’s growth of 5.2%.
Price Performance
In terms of valuation, STWD is currently trading at a 12-month forward price-to-earnings (P/E) of 10.87X, higher than its five-year median of 10.58X. Alternatively, the NLY stock is currently trading at a 12-month forward P/E of 6.65X, which is lower than its five-year median of 7.27X.
Price-to-Earnings F12M
Image Source: Zacks Investment Research
NLY is trading at a discount compared with the industry average of 7.96X, while STWD is trading at a premium. Hence, Annaly is a better choice for value investors.
How Do Estimates Compare for Annaly & Starwood?
The Zacks Consensus Estimate for NLY’s 2025 and 2026 earnings reflects a year-over-year rise of 6.3% and 1.4%, respectively. The Zacks Consensus Estimate for Annaly’s 2025 and 2026 earnings has been revised upward over the past 60 days, suggesting a bullish outlook from analysts.
NLY Estimates Revision Trend
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for STWD’s 2025 earnings suggests a year-over-year decline of 10.9%, while that for 2026 indicates a rise of 7.8%. The Zacks Consensus Estimate for STWD’s 2025 and 2026 earnings has been revised downward over the past 60 days, suggesting a more cautious outlook from analysts.
STWD Estimates Revision Trend
Image Source: Zacks Investment Research
STWD or NLY: Which Offers Better Value?
While both Annaly and Starwood offer attractive dividend yields and operate in the same broader mREIT sector, NLY stands out as the more resilient and better-valued option for now. Its focus on lower-risk Agency MBS, a growing mortgage servicing rights platform, improved liquidity and positive earnings momentum provide a stronger foundation for long-term growth.
In contrast, STWD’s heavier exposure to commercial real estate, higher debt levels and downward earnings revisions make it a riskier choice for now.
For investors looking for stable income with lower risk, Annaly offers the more compelling opportunity right now.
At present, Annaly carries a Zacks Rank #3 (Hold), while Starwood carries a Zacks Rank of 4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.