Better Dividend Stock: Toronto-Dominion Bank vs. Annaly Capital Management

Toronto-Dominion Bank (TD 0. 71%) has a yield of "just" 4

In some ways, these two dividend stocks aren't even playing in the same league

Indeed, if dividend reliability and dividend growth are important to you then you'll definitely be better off with Toronto-Dominion Bank

Here's what you need to know

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What backs up Annaly Capital Management's huge yield

Annaly Capital is what is known as a mortgage-focused real estate investment trust (REIT)

It buys mortgages that have been pooled together into bond- securities

This is a unique niche of the overall REIT sector and Annaly Capital is more a mutual fund than a landlord

The goal is to make the difference between the interest Annaly earns and its operating costs, which notably include the cost of debt

Annaly is actually a perfectly fine mortgage REIT

And it has a massive dividend yield, as noted above

But don't let that yield distract you from one important fact

Annaly is a total return investment, which requires dividend reinvestment

If you spend your dividends here you will ly end up being very disappointed

That's because Annaly has a long history of cutting its dividend

And the price tends to along with the dividend, going up and down along with the direction of dividend changes

The graph below summarizes a lot of information

Notice that total return (the blue line) is pretty impressive

But the dividend (the orange line) and the stock price (the purple line) have been very volatile

Sure, the yield today is huge

But if you spend that dividend instead of re it, well, history suggests that your outcome here bably won't be very good

NLY data by YCharts Toronto-Dominion Bank is a reliable dividend stock Compare the volatility with Annaly to the stability offered by Toronto-Dominion Bank

During the Great Recession, when some of the largest U

Banks were forced to cut their dividends, TD Bank, as it is more commonly known, held its dividend steady

Even when TD Bank's U

Arm was found to have laundered money and regulators hit the bank with a large fine and an asset cap, TD Bank increased its dividend despite the setback

There are a couple of key factors to consider here

TD Bank hails from Canada, where banking regulations are particularly strict

That has resulted in a conservative ethos within the banking sector, and within TD Bank

The regulation in Canada has also resulted in entrenched positions for the largest banks, of which TD Bank is one

Thus, TD Bank's foundation here is incredibly strong

The time to buy TD Bank is now TD Bank's stock has actually performed fairly well recently as investors have become less concerned the regulatory issue noted above

However, given the relatively high yield it is still a strong dividend option

So if you were considering taking on the risk of Annaly Capital's model, you might actually be better off taking on TD Bank and its regulatory risk issue

Yes, the yield is lower, but if you are trying to off of the income your portfolio generates, still-out-of-favor TD Bank is the stronger long-term option

Reuben Gregg Brewer has positions in Toronto-Dominion Bank

The Motley Fool has no position in any of the stocks mentioned

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