3 Reasons to Buy Annaly Capital Management, Inc. (NLY): ARMOUR Residential REIT, Inc. (ARR), CYS Investments Inc (CYS)

Despite the Federal Reserve’s QE3 program, mortgage REITs — particularly those that invest primarily in agency-only paper backed by Fannie and Freddie — have not imploded, though yields and dividends have suffered a bit.

But savvy investors know that the long-term view is most important, and that quantitative easing won’t be around forever. For mREITs, Annaly Capital Management, Inc. (NYSE:NLY) is the granddaddy of them all, and its longevity presents many good reasons to consider it a buy — three of which I see as the most compelling.

1. Returns over the long term have been spectacular
Since its 1997 IPO, Annaly Capital Management, Inc. (NYSE:NLY) has been very good to its investors. The company notes that its total return  to stockholders is somewhere between 500% and 600%, compared with an approximate return from the S&P 500 of 85% during the same timeframe. Annaly has also shared dividends totaling $9 billion since then.

But, you wonder, what about now? While it’s true that Annaly has been trimming its dividend over the past year, the most recent payout stayed stable from the previous quarter. Other mREITs, such as ARMOUR Residential REIT, Inc. (NYSE:ARR) and CYS Investments Inc (NYSE:CYS), have been forced to decrease dividends lately. ARMOUR Residential REIT, Inc. (NYSE:ARR) cut its payout by 12.5%, and CYS Investments Inc (NYSE:CYS) enforced a 25% trim on its dividend.

2. High prepayments may give Annaly an edge
There’s no doubt that Annaly Capital Management, Inc. (NYSE:NLY)’s constant prepayment rate is high: 19% as of the fourth quarter, compared to CYS Investments Inc (NYSE:CYS)’s 17.6%, and ARMOUR Residential REIT, Inc. (NYSE:ARR)’s lower-still 14.1%. However, this could be a blessing in disguise for Annaly, which could find itself with more cash on hand for newer securities, which will likely have a better spread if mortgage rates continue to rise. Extra cash will also come in handy for Annaly’s newest project, the purchase of Crexus Investment Corp (NYSE:CXS).

3. Annaly proves its flexibility
One of the most conservative mREITs in the business, Annaly Capital Management, Inc. (NYSE:NLY) has always trod the straight and narrow, never deviating from its agency-only mantra, even in lean times. Since the financial crisis, however, the unprecedented involvement of the Fed has prompted Annaly Capital Management, Inc. (NYSE:NLY) to branch out into uncharted waters through its purchase of CreXus Investment.

As CreXus is a buyer of commercial mortgage-backed securities, this new direction has made some analysts uneasy. While Annaly Capital Management, Inc. (NYSE:NLY)’s change of heart is not without risk, I think it shows that the company is willing to take a chance when it is truly necessary, and in small increments — thereby keeping the risk as low as possible. And that, after all, is what good management is all about.

The article 3 Reasons to Buy Annaly Capital originally appeared on Fool.com.

Fool contributor Amanda Alix has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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