AGNC Investment (AGNC +3.31%) is a mortgage real estate investment trust (mREIT). This is a fairly complex type of business, and investors should acquire a deep understanding of how it works before making a decision to buy or hold its stock. However, the sell (or never buy) choice is actually pretty simple. Here's what you need to know before you make your call on AGNC Investment and its ultra-high 15.5% dividend yield.
Sell AGNC Investment
It doesn't actually take any deep thinking to understand why you might want to avoid or even sell AGNC Investment shares. The single graph below tells the entire story. After a period when both its dividend payouts and its stock price rose swiftly, both have been falling for years. Shareholders who bought in for the income, and who have spent the dividends they collected from AGNC Investment rather than reinvesting them, now have less income and less capital.
If that sounds like a terrible outcome to you, then you should probably move on to another investment. Simple decision. The fact of the matter is that most income-focused investors want stocks that produce reliable and growing income streams. And those income streams, preferably, will come with stable or growing share prices, too. A 15.5% dividend yield is enticing, for sure, but don't get lured in by a relatively big payout that may not be sustainable. At the very least, the history here suggests that the dividend can fluctuate wildly. In that context, most dividend investors will want to avoid AGNC Investment, and perhaps sell it if they own it.
Buy AGNC Investment
That said, AGNC Investment is not a bad investment for all investors. It is a mortgage REIT, which means it buys mortgages that have been rolled up into bond-like securities, instead of owning properties and leasing them to tenants like most REITs. In some ways, it is like a mutual fund, given that the value of the company is equal to the value of its portfolio of mortgage securities. Although the dividend is an important component of the return here, the mREIT is focused on total returns, not just the income it generates. That, too, is more like the way investors look at a mutual fund. From a total return perspective, which assumes dividends are reinvested, AGNC Investment has done reasonably well over time, as the chart below highlights.
In fact, while the total returns right now aren't as high as those of the S&P 500 (^GSPC +1.20%) index, they are pretty close. For investors using an asset allocation model, AGNC Investment is a solid way to add mortgage exposure to their portfolios. While most dividend investors don't focus on asset allocation, many investors do. (It's a strategy often used by large investors such as pension funds, though some individual investors also follow this approach.)
So there are reasons to own AGNC Investment, despite its less-than-desirable dividend history.
NASDAQ: AGNC
Key Data Points
Hold AGNC Investment
Here's where things get a little tricky. How can a serial dividend cutter with a falling share price generate a solid total return over time? Let's do the math.
AGNC Investment's initial public offering (IPO) price in mid-2008 was $20 per share. It currently changes hands at about $9.30 per share. That means it has delivered a capital loss of roughly $10.70 per share. However, since its IPO, it has paid out $48.64 per share in dividends (through the third quarter of 2024).
Image source: Getty Images.
So, from a big-picture perspective, AGNC Investment has spit out $37.94 per share in cash over and above the capital loss investors have suffered. For investors who only care about the income their portfolio generates and are willing to lose some capital along the way so long as the dividend makes up for it, well, AGNC Investment might be worth holding onto. This, however, is a fairly nuanced view of the investment that most dividend investors probably won't hold.
Know what you are getting into with AGNC Investment
All in all, AGNC Investment is not your run-of-the-mill high-yield REIT. It requires a lot of extra legwork to really understand what this company is doing and how to think about its return profile. For most investors, it won't be a great fit. But for some, it might be perfect. Just don't make the mistake of buying AGNC Investment only because of its ultra-high dividend yield. That is likely to lead to disappointment.
