AGNC Investments (AGNC 0.97%) is an alluring dividend stock. The mortgage-focused real estate investment trust (REIT) offers an enticing 15% dividend yield. That's ten times the S&P 500's dividend yield.

As tempting as that payout might seem, AGNC Investments might not be the right dividend stock for everyone. Here are some factors to consider when deciding whether it's right for you.

How AGNC makes money to pay dividends

AGNC Investments is a mortgage REIT focused on investing in residential mortgage-backed securities (MBSes) guaranteed against credit loss by government agencies like Fannie Mae. It gets repaid its principal even if borrowers default on their mortgages. That makes investing in agency MBSes very low risk.

However, MBS investments are also pretty low-return on a 100% equity basis. AGNC can boost its returns by investing in agency MBSes on a leveraged basis (i.e., using debt to fund a portion of its investment). The more debt it uses, the higher its return potential.

AGNC uses a lot of leverage. Its leverage ratio was 7.9 at the end of the third quarter. While using leverage can enhance its returns, it can also magnify its losses. The company reported a $1.02 comprehensive loss per share for the third quarter, meaning it didn't cover its dividend ($0.36 per share during the quarter) with earnings.

However, covering its dividend is a lot more complicated. CEO Peter Federico provided insight into the company's payout on its third-quarter conference call. He stated, "One of the primary factors that we evaluate in setting our dividend is the economic return that we expect to earn on our portfolio at current MBS valuation levels." He noted that the company needed a 16% return to satisfy its operating costs and current payout level. The good news is, "At current valuation levels, the expected levered return on agency MBS depending on coupon is in the mid-teen to low 20% range." The company therefore believes "our common stock dividend remains well aligned with the return that we expect to earn on our portfolio at current valuation levels and operating parameters."

The dividend has a long history of declining

Given its return expectations, AGNC Investments expects to be able to maintain its current dividend rate. However, that doesn't mean it will be able to sustain the payout indefinitely. Federico stated on the call, "We continuously evaluate our dividend as market conditions, expected returns, and risk management considerations are always changing." That suggests the company could cut the dividend if market conditions or expected returns deteriorate.

That has happened several times in the past. At its peak right after the financial crisis, AGNC paid a $1.40 per share quarterly dividend. However, the mortgage REIT has cut its payment several times over the years. It now pays investors $0.12 per share each month ($0.36 quarterly). Its dividend has been at that rate since the early days of the pandemic, when it reduced the payment from $0.16 per share.

That steadily declining dividend has weighed on the REIT's share price. It currently sits at around $9.50 per share, more than 50% below its IPO price. On a more positive note, the company has delivered a positive total return of more than 10% annually when adding in its hefty dividends, roughly matching the S&P 500's total return since its IPO. However, its total return has been negative over the last one-, three-, five-, and 10-year periods, woefully underperforming the market.

A higher-risk dividend stock

AGNC Investments focuses on investing in low-risk agency-backed MBSes. It uses leverage to boost its returns and ability to pay dividends. However, that leverage increases its risk, which has manifested through dividend reductions and underperformance in recent years. It might not be the best dividend stock for those seeking a company that can deliver a sustainable payout and market-beating total returns.