Sometimes the Federal Reserve speaks loud and clear and if you can read between the lines, there may be an area that investors can profit over the next couple of years.

For this investment to work, we need two primary things in our favor.  First, the fed must keep interest rates low, which they have already said they would do at least until sometime in 2013.  Second, the government must continue to be the backstop or lender of last resort to the mortgage back security market.  If these conditions remain in effect, there is a way to earn large annual dividends of more than 15%.

Enter, Annaly Capital Management, Inc: which “commenced operations on February 18, 1997 as a self-managed self-advised company. We have elected to be treated as a real estate investment trust (or REIT) under the Internal Revenue Code. We own and manage a portfolio of mortgage-backed securities. Our principal business objective is to generate income for distributions to our stockholders from the spread between the interest income on our mortgage-backed securities and costs of borrowing to finance our acquisition of mortgage-backed securities and from dividends we receive from our taxable REIT subsidiaries.”

One of the other things to consider is that the stock itself can decrease in value in a heavy market downturn.  The old saying about a rising and falling tide is true, all  boats go together, as do most stocks.  However, in a calculated risk scenario, this may be worth while.  If you hold the stock, write some covered calls every couple of months and even buy part of an inverse position around it to protect against a protracted market decline.  You will continue to receive the dividends as long as the interest rates remain at or near current levels.  The last component to holding any equity or risk position is to be vigilant about a trailing stop loss.  For example, if your average cost is $16 then you should consider a discipline that will take you out of the position at a price around $12.  This is a must for investors to recognize that once your investing capital is gone, there is no more investing.  Always protect your original investment as best you can.  Sometimes we will take a loss, but remember, your first loss is usually your best loss.  Don’t ever get married to a stock, bond or other type of investment.

If you’re wondering what the long term performance has been, the following link outlines a chart comparing NLY to the major averages for more than a decade, take a look HERE.

Our readers know and understand why we’re not advocates of holding many stocks right now due to the current trend in the stock market which remains down, however if you’re prudent and purchase a position in small increments to average in, and employ some of the other tactics and strategies outlined above, you will be able to protect the capital while realizing a nice dividend income over the next couple of years.

Our readers are aware of a target we have for the S&P and DJ Industrial Averages to reach before we will suggest deploying any significant risk capital.  We have been on the sidelines or invested in short funds for our more aggresive readers, waiting for the opportunity to present itself.  We are  getting closer.  Stay tuned.

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