Will the stock market crash? Who knows? That’s why I would own this high-yielding dividend stock.

If you’re like most investors, you like the long-term edge of the market. You just don’t want to suffer his occasional (and sometimes painful) failures. Problem? You never know when accidents will come. The best you can hope for is to minimize their suffering once they arrive. And the best way to do that is to position yourself correctly before the big pullbacks take shape.

With that as a backdrop, there’s one name in particular that I’d consider right now, should a market crash loom. That’s it Annaly Capital Management (NYSE: NLY).

Never heard of her? Don’t sweat. You are not alone. It’s not exactly a household name, and with a market cap of just $10 billion, it’s not like it’s getting a lot of attention from the financial press.

Still, it does its job for investors incredibly well.

What is Annaly Capital Management?

Annaly Capital Management is a real estate investment trust (REIT). As the name suggests, REITs are real estate-focused organizations. REITs own properties ranging from hotels and office buildings to shopping malls, apartment buildings and more. Their main goal, however, is the same in all cases: generating reliable and recurring income for shareholders.

Still, Annaly is unique even by REIT standards. Rather than owning real estate for rent or income, this company’s business is a combination of managing mortgage servicing rights, buying and selling mortgage-backed securities issued by government agencies, such as Fannie Mae or Freddie Macand which essentially engages in interest rate arbitrage between its own borrowing costs and the yields on the mortgage-backed securities it holds.

It sounds crazy, and in some ways it is. The business model is 100% tied to the US mortgage market, which evolves with ever-changing interest rates. Sometimes this business is predictable. Other times, it isn’t. And sometimes, even when it’s predictable, that doesn’t necessarily mean there’s an easy way for a mortgage REIT to defend against looming failures.

At the end of the day, however, Annaly Capital Management makes it work. Since its inception in 1996, this REIT’s total return has kept pace with S&P 500His earnings for the same time frame, with most of Annaly’s net earnings coming in the form of what is typically an outsized dividend that continues to be paid even when the broader market is on the ropes.

An advantageous disconnection

Don’t misread the message. For anyone who needs consistent and predictable investment income, Annaly Capital Management can be a pretty tough ticker to count on. Pay does not necessarily increase with inflation, if does not grow at all. Sometimes it shrinks, reflecting ongoing changes in the underlying mortgage market in which this REIT exclusively operates. The price of this ticker changes — often low — so that its return more closely reflects the prevailing, risk-adjusted returns at a given time.

The story continues

The REIT’s underlying earnings (called earnings available for distribution) are also affected by changes in interest rates themselves, which can force the organization to adjust its dividend payments from time to time.

Annaly Capital Management is still a great defensive option in the event of a market crash, however, for a few different but related reasons: (1) This business doesn’t necessarily rise and fall with the ebb and flow of the stock market, and (2) ) the dividend behind Annaly’s current yield of 13% will be paid regardless of market performance in the near future.

That’s better than the S&P 500’s average annual return, by the way.

To be clear, owning a stake in this REIT does not guarantee that you will be better off than not if the stock suffers a sizable pullback. After all, there are no guarantees in this business. Anything can and will eventually happen.

But that’s not the point. The most you can do is give yourself the best chance to escape the full weight of a massive sale. Annaly gives you at least a reasonable chance to do that. In the meantime, it distributes a good amount of cash in an environment where growth stocks may not post a lot of gains for a while.

Keep it in perspective

The defensive benefits here are obvious, but even so, interested investors should keep things in perspective. Annaly is not suitable to serve as a major, core holding in a long-term portfolio. And if your current goal is just to survive a market crash, you should consider choosing other types of defensive trades, such as gold or bonds.

Still, Annaly Capital Management is a top prospect for at least a small portion of your portfolio right now, if only because it’s so far from the mainstream market but still capable of producing net stock-market-like returns .

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James Brumley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Will the stock market crash? Who knows? That’s why I would own this high-yielding dividend stock. was originally published by The Motley Fool