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Annaly Vs. Hatteras: Same Business, Much Different Companies
25 Jun 2010 EDT - CNBC.com

Annaly Mortgage and Hatteras Financial both operate as mortgage real estate investment trusts. That means they borrow money on the cheap and then buy high-yielding mortgage-backed bonds called agency paper, which are insured by Fannie Mae, Freddie Mac and Ginnie Mae. But despite borrowing at the same interest rate, buying basically the same securities and facing the same problems, Annaly this month raised its dividend 3 cents a share while Hatteras cut its payout by 10 cents.

Why the stark difference?

Well, Fannie and Freddie were repurchasing their lower-quality bonds, those backed by sub-par borrowers. This isn’t good for either Annaly or Hatteras , but the former proved itself the better executioner, so to speak, and therefore was able to thrive in spite of the buyback.

See, the majority of the loans owned by Annaly are fixed-rate securities with low delinquency rates, giving the company the better chance to shrug off Fannie and Freddie’s buying. Hatteras, however, owned the opposite, hybrid loans with higher delinquency rates. And while Hatteras invested in short-term paper that may require them to refinance at less attractive levels, Annaly was smart and bought for the longer term, thereby locking in better rates.

Cramer also credited Annaly CEO Mike Farrell for his stewardship, as well as his profit taking on top-performing securities for putting the company on solid ground. And there’s also the fact that the company is the only agency REIT to deliver a positive return on equity during each year of the past decade, through an entire interest-rate cycle.

These two companies may have yielded upwards of 14% or more, but obviously there was a red flag on one of them. And anyone who took note of Cramer’s aforementioned points would have seen the cut coming. Those who didn’t, of course, know what to look for going forward.

The bottom line, though, as Cramer said, is that “not all high yields are created equal.”

Quick hits: Cramer also revisited three stocks with high yields that viewers had asked about: TLK , National Grid and Cheniere Energy . While the first two got the thumbs up, Cheniere did not. There’s already a glut of natural gas in the US, so why buy a stock that imports it? That had Cramer concerned about both the company and the payout, so he wouldn’t recommend either.

Call Cramer: 1-800-743-CNBC

Questions for Cramer? madmoney@cnbc.com

Questions, comments, suggestions for the Mad Money website? madcap@cnbc.com

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