Mortgage real estate investment trust (mREIT), AGNC Investment (AGNC 0.42%) had a turnaround year in 2025. With dividends reinvested, the stock returned almost 35%, as the company benefited from a more favorable economic environment.
For those unfamiliar with AGNC, it owns a portfolio of agency mortgage-backed securities (MBS). Because MBS are backed by government agencies, they carry almost no default risk. However, changes in interest rates and mortgage spreads can have a big impact on AGNC's portfolio and thus stock performance.
NASDAQ: AGNC
Key Data Points
Improving environment
Widening mortgage spreads and higher interest rates plagued AGNC's balance sheet beginning in 2022. Its tangible book value (TBV) went from $15.75 at the end of 2021 to as low as $7.81 in Q2 2025, a fall of more than 45%. However, its TBV has been rallying, rising to $8.28 at the end of Q3 and to $8.88 to close out the year. TBV is essentially the value of its MBS portfolio, so its stock price will often be tied to this metric.
It also paid out $0.36 per share in dividends in the quarter, bringing its total economic return on tangible common equity to 11.6%. Overall, AGNC produced $0.35 per share in net spread and income from dollar rolls (a hedging strategy used in MBS markets to avoid losses when MBS values decline). This is what AGNC typically uses to pay out its dividend, but it did fall $0.01 short of covering it this quarter.
AGNC's average net interest spread was 1.81%, compared to 1.92% a year ago and 1.78% in the third quarter. AGNC's net interest spread had been narrowing, but settled into a tighter range during the second half. Meanwhile, management expects recent and future rate cuts to lower its funding costs and help its net spread income.
AGNC ended the quarter with 7.2 times tangible net book value "at risk" leverage (debt plus net receivables or payables for unsettled investment securities outstanding/shareholder equity excluding goodwill). That was down from 7.6 times in Q3 and unchanged from a year ago. If mortgage spreads stabilize, the company could up its leverage.
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Is it time to buy the stock?
The current environment for AGNC is much improved. Mortgage spreads have tightened, helping its TBV, and the Trump administration is pushing Fannie Mae and Freddie Mac to buy $200 billion in MBS, which could compress spreads even more. Meanwhile, funding costs should continue to start pushing lower, allowing it to fund its robust dividend.
With a 12% yield and a generally favorable environment for mREITs, AGNC is a solid stock to own for income-oriented investors. The biggest risk would be policy changes that lead to a huge amount of refinancing, although about 76% of its portfolio is of mortgage pools with favorable prepayment elements.
