Based on the aggregated intelligence of 170,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, American Capital Agency (Nasdaq: AGNC), which invests in agency pass-through securities and collateralized mortgage debt, has earned a respected four-star ranking.

With that in mind, let's take a closer look at American Capital Agency's business and see what CAPS investors are saying about the stock right now.

American Capital facts

Headquarters (Founded) Bethesda, Md. (2008)
Market Cap $3.58 billion
Industry Mortgage REIT
Trailing-12-Month Revenue $307.38 million
Management

Chairman/CEO Malon Wilkus

CFO Bernice Bell
Trailing-12-Month Return on Equity 27.2%
Cash/Debt $173.3 million / $12.08 billion
Dividend Yield 19.5%
Competitors

Annaly Capital Management (NYSE: NLY)

Anworth Mortgage Asset (NYSE: ANH)

Capstead Mortgage (NYSE: CMO)

Sources: Capital IQ (a division of Standard & Poor's) and Motley Fool CAPS.

On CAPS, 95% of the 545 members who have rated American Capital Agency believe the stock will outperform the S&P 500 going forward. These bulls include saraherik and sailrmac.

Earlier this year, saraherik tapped American Capital Agency as an outsized income opportunity: "Highly leveraged in government backed securities. I believe interest rates will remain low for the time being. ... [A]t near 20% dividend i am willing to take the risk for awhile."

In fact, American Capital Agency's current dividend yield of 19.5% is higher than that of rivals Annaly (14.4%), Anworth (14.3%), and Capstead (12.7%).

CAPS member sailrmac elaborates on the bull case:

[American Capital Agency] buys agency mortgages sending you a dividend that equals the difference between the interest it pays on money borrowed and the interest it collects on the mortgages. Agency mortgages are guaranteed by the US government the same way treasuries are so, there is no default risk. Roughly half of AGNC's portfolio is adjustable rates and half fixed. The borrowings tend to be at shorter term rates whereas the mortgages they buy tend to be longer term. The majority of the profit therefore comes the same way a bank historically makes money, by the spread between short term borrowings and long term lendings.
Ever since the Lehman debacle the Fed has been very friendly to this model, trying to reflate banks. In an indirect way continuing housing woes actually help AGNC as it encourages the Fed to keep the spread large in order to shovel money to banks. Basically, through AGNC the FED is purposely trying to shovel money to me too.

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