There is no one-size-fits-all solution for investing. Every investor has their own goals, risk tolerances, and financial means that ultimately guide investment decisions.
Even though some investors may find AGNC Investment (AGNC 0.97%) and Boston Properties (BXP -0.71%) attractive given their juicy yields, these are two stocks these two Motley Fool contributors would avoid. Here's why.
BXP Dividend Yield data by YCharts
High yields don't outweigh the high risk this company carries
Liz Brumer-Smith (AGNC Investment): Paying a yield of more than 14%, AGNC Investment is one of the highest-yielding dividend real estate investment trusts (REITs) on the market today. High dividend yields often indicate higher risk, which certainly holds true for this mortgage real estate investment trust (mREIT).
AGNC Investment doesn't own and lease physical real estate like traditional equity REITs. Rather, the company invests in mortgage-backed securities (MBSs). The groups of loans it invests in, called agency loans, are primarily guaranteed by the U.S. government and are securitized and sold on the secondary market. AGNC Investment aims to profit by earning more interest on the loans it holds than it costs to finance and acquire them.
Mortgage REITs are facing a slew of challenges right now. High inflation is hurting returns on fixed-rate mortgages, while mREITs' cost of capital has also increased rapidly thanks to rising interest rates over the last year.
In the case of AGNC, higher interest rates have eaten into the spread it makes while declining demand for these assets in a volatile high-interest rate market has reduced the company's book value. These headwinds aren't expected to ease much anytime soon as interest rates remain elevated. This means the risks the company is facing, particularly as it operates at a net loss, are great.
AGNC hasn't been a winner over the long term either. The company's share price has fallen 69% during the past 10 years and it's cut its dividend payout by 88% during that same period. Today's 14% yield may seem appealing, but if income and reliability are what you're after, it's easy to see why this is a stock to steer clear of.
Boston Properties is not the cure for what ails you
Marc Rapport (Boston Properties): Boston Properties touts itself as "the largest publicly traded developer, owner, and manager of premier workplaces in the United States" and that might just be the problem here. While its stock is yielding a tempting 7.5%, this REIT is in the bear market bull's-eye that office space has become as a result of the pandemic.
This is a very big target. Boston Properties has 194 properties with 54 million square feet of some of the most prestigious Class A space in Boston, Los Angeles, New York, San Francisco, Seattle, and Washington, D.C. However, that space is currently only about 89% leased.
Compare that to the minimal vacancies for other sectors, particularly industrial REITs and you can see the problem. Now, of course, there is no problem here if you believe people eventually will give up working from home en masse. But that seems unlikely.
Of course, this trust isn't placing all its bets in traditional office market. Boston Properties has joined the crowd moving into the life sciences niche, which now comprises 5.6 million square feet, about 12% of its portfolio. But if you want to invest in that business, you might instead look at Alexandria Real Estate Equities.
Alexandria is a highly specialized office REIT has a portfolio of 75 million square feet devoted largely to companies, universities, and other organizations that are working on advanced therapies for preventing and treating illnesses. It competes in much the same markets as Boston Properties, has a higher percentage of occupancy and a beaten-down price of its own, and may well have better prospects.
There are much safer options for high-yield stocks in the market today that simply aren't facing the same challenges and headwinds as these two companies.
