Jim Cramer Thinks NLY Is A Buy

Jim Cramer said on CNBC's Mad Money that Annaly Capital Management, Inc.

is a terrific buy. He especially likes its yield, which is 15%. Cramer usually considers high dividend yields as red flags for companies, but in this case it is not a red flag. He explained that this company is a MREIT and Annaly Capital Management, Inc. (

) is the best in the business. It borrows money inexpensively to buy higher yielding mortgage backed bonds that are insured by Fannie Mae

and Freddie Mac

. The difference between the amount that it pays on the borrowed money and the amount it receives from the bond yield is its profit. NLY pays 90% of its profit to stock holders through the dividend. Interest rates are very low now, continued Cramer, and NLY can borrow money very cheaply. In Cramer's opinion FED is not going to raise rates any time soon. Cramer also pointed to the threat that the government could stop buying mortgage securities, which would hurt NLY. He believes that this scenario won't happen because when the government starts to sell it will sell them over a longer period of time, maybe five years. Another risk for NLY's business is refinancing on lower rates, which would lower the yields on the bonds that this company is buying. This can only do moderate damage to the company, thinks Cramer. Additionally, FNM and FRE are buying bad mortgages, and that could also hurt NLY's earnings. Cramer thinks that this is already factored into the price.