This has been a disappointing year for short-term traders, but not for investors who buy with the intention of holding on for the long haul. Right now, there are at least two ultra-high-yield dividend stocks that could double your principal by the end of 2028.
AGNC Investment (AGNC -1.18%) and Annaly Capital Management (NLY 0.94%) currently offer investors dividend yields of 12.2% and 13.8%, respectively. This means anyone who buys shares now and reinvests their dividend payments could see their original investment double by 2028.
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Of course, these stocks need to maintain their payouts at current levels. These highly specialized stocks offer mouth-watering yields right now because the market expects trouble ahead that will cause them to lower their payouts.
Are these stocks worth the risk? Before putting any amount of your hard-earned money on the line, find out why they offer such high yields.
AGNC Investment
This is a real estate investment trust (REIT) that doesn't own any real estate. Instead of physical property, AGNC Investment buys mortgage-backed securities. More specifically, the company focuses on securities that have decades of interest payments and their principals guaranteed by the U.S. government.
Mortgage REITs have a pretty straightforward business model. They aim to buy high-yielding long-term assets with money they borrow at relatively low short-term lending rates. AGNC Investment's stock price is under pressure because short-term rates have been rising faster than long-term rates.
If you've looked at financial media over the past year you probably know that the Federal Reserve has been raising interest rates to combat rising inflation. In recent months, short-term lending rates have risen above long-term lending rates. This condition, known as an inverted yield curve, makes it hard for mortgage REITs like AGNC to make any money. This is why the company lost $1.08 billion in the first quarter this year and another $729 million in the second quarter.
As an everyday investor, the most important thing to remember about inverted yield curves is that they are temporary. AGNC Investment may be in a tight spot now, but once the dust settles it could be better positioned than ever before.
Annaly Capital Management
Annaly Capital Management is another mortgage REIT that offers a high dividend yield now because investors are worried rates are rising too fast for the company to maintain its payout. That hasn't stopped Annaly from reporting net profits this year that are more than sufficient to meet its dividend obligation.
Like AGNC Investment, the vast majority of Annaly's money is invested in securities backed by government agencies. Annaly also has a rapidly growing revenue stream derived from servicing mortgages.
Mortgage servicing rights typically pay Annaly 0.25% of the total mortgage balance each year. Higher interest rates can immediately raise mortgage balances, and the fees Annaly receives. This could be an effective hedge while the company transitions its portfolio toward new agency-backed securities that offer higher rates of return.
Stay diversified
Reinvesting dividends from Annaly Capital Management and AGNC Investment could double your original investment by 2028, but this is far from guaranteed. While both have a chance to outperform over the long run, more signs of rising inflation in the near term could incite the Federal Reserve to raise rates faster than these REITs can handle. If you put these stocks in a portfolio, make sure it's well diversified.
