Should You Buy AGNC Investment (and Its 14% Yield) While It's Below $10?

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Shares of AGNC Investment (NASDAQ: AGNC) have risen nearly 40% over the past year. But when you add the mortgage real estate investment trust's (REIT's) huge 14.5% dividend yield to the mix, its total return (which assumes dividend reinvestment) was an even more impressive 60% or so.That's a huge total return and easily beats the 42% total return of the S&P 500 index. Is there more to come as AGNC Investment's stock price bounces up against the $10 price level?

What does AGNC Investment do?

There are two important facts to glean from AGNC Investment being a mortgage REIT. First, REITs are designed to pass income on to shareholders in a tax-advantaged fashion. A REIT can only remain a REIT if it pays out at least 90% of its taxable income as dividends. So dividends are a very important piece of the puzzle with AGNC Investment. Second, AGNC invests in mortgages.

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AGNC Chart
AGNC Chart

A property-owning REIT is fairly simple to understand. It buys a physical asset (some kind of building) and leases it out to a tenant, collecting rent along the way. That rent is used to fund dividends. A mortgage REIT buys mortgage securities, which are often bond-like investments that are made up of mortgages that have been pooled together into a single interest-paying security. Very often leverage is employed in an effort to enhance returns.

All in, AGNC Investment's cash flow is the difference between the interest it earns on its portfolio of mortgage securities and the costs it incurs to buy them (that includes management expenses and interest expenses). That's very different from owning a property.

AGNC Investment reports what amounts to a net asset value, which it calls tangible book value. Tangible book value, like NAV, is the value of AGNC Investment's portfolio divided by the number of shares it has outstanding. At the end of the third quarter of 2024, the tangible book value was $8.82 per share. The stock, however, is trading closer to $10 per share.

Is AGNC Investment worth buying?

For starters, mortgage REITs are fairly complex businesses. A lot of things can influence the price of a mortgage security, including interest rates, housing market dynamics, mortgage repayment rates, and even the year in which a mortgage bond was created, among other things. Unless you are willing to take the time to learn about the mortgage REIT sector, you probably shouldn't go anywhere near a REIT like AGNC Investment. And even if you do take the time to understand the mortgage REIT sector, it will still be very difficult for you to track AGNC Investment's portfolio.