What happened
Events in February put a distinct chill on shares of AGNC Investment (AGNC -1.28%), a mortgage real estate investment trust (mREIT) that saw its stock price fall by 13.3% during the month, according to data provided by S&P Global Market Intelligence.
That swoon continued a trend for this high-dividend stock that has seen its share price continue a deterioration that began after it hit a 52-week high of $18.84 last June 9. AGNC shares hit a current 52-week bottom of $12.17 on Feb. 24 and have since recovered to about $13.27 on March 3.
As an mREIT, AGNC makes its money through leveraged purchases and sales of residential mortgage-backed securities primarily from Fannie Mae, Freddie Mac, and Ginnie Mae. It pays dividends monthly, and the $0.12 a share it pays out on March 9 will mark its 23rd straight month at that level since cutting the dividend from $0.16 in March 2020. That gives it a current yield of about 10.92%.
So what
There appear to be two major factors influencing the market's treatment of this 14-year-old mREIT: rising interest rates and the company's declining estimated tangible net book value. The value of the securities that AGNC holds in its portfolio decline as rates rise, so the current rate environment naturally has led to some downward pressure.
But AGNC's problems with book value emerged in mid-2021 when it went from $17.96 per share at the end of April to $16.82 a month later. Things haven't improved. AGNC announced on Feb. 10 that its estimated tangible net book value had dropped to $14.91 per share.
At the same time, it said that "consistent with industry practice," it would no longer be providing monthly announcements of estimated tangle net book value, although its dividends would still be paid monthly. The share price has fallen about 8% since that Feb. 10 announcement.
Image source: Getty Images.
Now what
AGNC, with a market cap of about $6.8 billion, is hardly the only mREIT seeing its share price stumble. For instance, shares in its largest peer, $10.4 billion Annaly Capital Management, fell nearly 12% in February.
The market is pricing expectations of rising rates into the value it's placing on mREITs' share prices. But these are income stocks primarily, and with AGNC's modest payout ratios of 37.72% based on cash flow and 67.29% based on 2022 earnings expectations, that handsome dividend flow appears reasonably safe.
