AGNC Investment (AGNC -0.96%) is a mortgage real estate investment trust (REIT). That is an important fact to remember as you consider its astonishingly high 16% dividend yield. One really interesting fact about the company is that it literally tells investors what the stock is worth every quarter. And investors keep paying more than that price for the stock. Here’s what you need to know before you buy this high-yield mREIT.
What does AGNC Investment do?
AGNC Investment is a mortgage REIT, which is vastly different from a property owning REIT. A property owning REIT basically does what you would do if you owned a rental property, just on a much larger scale. Thus, it isn’t complicated to wrap your head around buying a property and leasing it out to tenants. But AGNC Investment doesn’t do that, it buys mortgages that have been pooled together into bond-like securities.
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Essentially, it is attempting to make the difference between its cost of capital and the interest it earns from the mortgage securities it owns. The cost of capital includes both operating costs (paying its employees, etc.) and interest costs, since it makes use of leverage in an attempt to enhance returns. But that leverage is different from a mortgage on a property because the price of the mortgage securities backing the debt change rapidly (they trade all day long) while properties tend to trade hands infrequently. Simply put, there’s more risk in the leverage AGNC Investment is taking on.
To be fair, AGNC Investment has largely achieved its goal over time. But that goal isn’t income, its total return. The income it throws off is simply in service of the total return goal, meaning the company expects investors to reinvest the dividends. If you don’t reinvest the dividends the outcome isn’t nearly as good as you might be hoping for as a dividend investor. As the chart below highlights, total return over time has been positive while AGNC Investment’s dividend has been in a long downtrend and so, too, has the stock price.
AGNC Investment isn’t hiding anything from investors
What’s interesting is that AGNC Investment is quite open about its business. On its web page it explicitly states “Objective: Favorable long-term stockholder returns with a substantial yield component.” Total return is the stated goal even though the lofty yield is probably attracting a lot of dividend investors. If you buy AGNC Investment with plans to spend the dividend on living expenses, history suggests you’ll end up with less income and less capital. That’s not the outcome you’re likely to be looking for.
But what’s even more interesting is that AGNC Investment often has the opportunity to sell new shares at prices that appear a bit high. For example, in the first-quarter 2025 earnings release management announced that the REIT “Issued 49.7 million shares of common equity through At-the-Market (“ATM”) Offerings for net proceeds of $509 million.” Do the math on that, and new buyers were paying around $10.25 per share for AGNC Investment’s secondary offering.
In that same earnings release, management also announced that the REIT’s tangible net book value was $8.25 per share, down from $8.41 at the end of 2024. What’s so surprising about this number is that AGNC Investment reports it every single quarter, and yet investors are still willing to pay above that price for the stock. Given that the only asset that AGNC Investment owns is its portfolio of mortgage securities, tangible net book value is effectively the company’s net asset value (NAV) per share. NAV is a term borrowed from mutual funds, where the value of the fund is the value of the securities it owns.
If you are looking at AGNC Investment there are very few reasons why you would want to pay more than NAV to buy the stock. And to pay a premium that was nearly 25% above the tangible net book value seems… quite enthusiastic. Sure, falling interest rates could lead to an increase in the value of AGNC Investment’s bond portfolio. But it would be shocking if rate changes resulted in such a swift uptick.
AGNC Investment is wonderful if you buy it for the right reasons (and at the right price)
If you buy AGNC Investment, with the expectation that the huge 16% dividend yield will provide you with a lifetime of reliable income, well, that positive view just isn’t supported by the company’s dividend history. And if you buy the stock for more than its tangible net book value, you need to believe that something will change that will increase the value of the mortgage securities portfolio the mREIT owns.
That said, over time, AGNC Investment has lived up to its goal of total return. If that’s what you are buying it for, and you make sure not to dramatically overpay for the shares, you could end up a happy shareholder. All in, this is not a simple investment to wrap your head around. If you are looking at it, make sure that you are considering it for the right reasons and, just as important, that you pay a reasonable price.
