You make some legitimate points. However, since 1998 NLY has returned just over 11% annually while the share price has declined about 40 cents. That time period includes two occasions when the yield curve inverted.
As recently as 2012, NLY traded right around book value. The share price has fallen to around 80% of book value because the market is demanding a 11.50% return as compensation for the risk of owning the shares. If the shares traded at book value now, then the dividend rate would be only 9.2%
The book value of the shares is $13.10; shareholders own $13.10 of mortgage securities for each share of NLY that they own. So the the dividend rate is actually 9.2% because that is what we are paid on the value of the shares we own. The shares sell at a 20% discount because the market believes our money is at risk. Maybe they should just sell our securities and mail us our $13.10. That would amount to more than 2.5 years of dividends. I would take the money now. We have to hope that the share price doesn't fall further, and that the dividend is not cut, so we will break even 2.5 years from now.
You might be right about the market looking forward. The share price has fallen about 10% and the shares have a 20% discount to book value. That dismal performance might be the market pricing in anticipated rate hikes before they happen.
It is true that NLY could buy back its own shares at a 20% discount. The shares represent a portion of the bond portfolio So buying the shares is like buying mortgage backed bonds at a 20% discount. Since they are in the business of holding and trading bonds, you might wonder why they don't do a buyback. The answer is simple, NLY management is paid 1% of assets under management through a separate management agreement. If management authorizes a share buyback, it would be good for shareholders, but bad for executive compensation. If fact, the shares would never sell off to this level of discount if management would act on behalf of shareholders and take advantage of the arbitrage.