AGNC Investment: Buy, Sell, or Hold?

Motley Fool04-28

AGNC had a good first quarter, with book value growing and earnings that handily covered the dividend. The stock is offering a huge 15.3% dividend yield. Before you consider adding AGNC ...

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It's a complicated investment.","collect":0,"end_time":0,"defaultTopTitle":"fool.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4585":"ETF&股票定投概念","BK4588":"碎股","REIT":"ALPS Active REIT ETF","BK4110":"抵押房地产投资信托","AGNC":"美国资本代理公司"},"translate_title":"AGNC投资：买入、卖出还是持有？","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"AGNC":1,"REIT":1},"content_text":"AGNC had a good first quarter, with book value growing and earnings that handily covered the dividend.\n\n\n\n\n\n\n\nThe stock is offering a huge 15.3% dividend yield.\n\n\n\n\n\n\n\nBefore you consider adding AGNC to your portfolio, you need to understand a little more about the REIT.\n\nAGNC Investment (AGNC 0.97%) is a real estate investment trust (REIT). It offers a huge 15.3% dividend yield. And first-quarter 2023 financial results were solid, with book value up 1.6% so far in 2024 and earnings handily covering the dividend payment. It would be understandable if income investors were attracted to AGNC Investment. But before you make a buy, sell, or hold call here, you need to understand a little about the company's backstory.What does AGNC Investment do?AGNC is an REIT, but it isn't a landlord like most other REITs. It buys mortgages that have been pooled into bond-like securities. This is a very different business model than owning a physical property and renting it out to tenants, which is a fairly simple thing to understand. Owning a portfolio of mortgage securities, as AGNC does, is more like running a mutual fund.AGNC Investment Corp.\" current_price=\"9.33\" daily_high=\"9.39\" daily_low=\"9.25\" default_period=\"FiveYear\" dividend_yield=\"15.43%\" exchange=\"NASDAQ\" fifty_two_week_high=\"10.64\" fifty_two_week_low=\"6.81\" gross_margin=\"100.00\" logo=\"https://g.foolcdn.com/art/companylogos/mark/AGNC.png\" market_cap=\"$6B\" pe_ratio=\"10.42\" percent_change=\"0.97\" symbol=\"AGNC\" volume=\"13,154,097\">The big problem is that the mortgage securities AGNC Investment owns trade all day. So they are more volatile than property prices, which tend to rise and fall more slowly over time. Moreover, bond prices are highly sensitive to interest rate changes, falling when interest rates rise and rising when interest rates fall. Then you have to consider the impact interest rates can have on the housing market, which is the source of the mortgages that AGNC eventually buys. Higher rates make it more expensive to take out a mortgage, and can lead to fewer home sales. Rising and falling rates can also impact the way customers pay their mortgages. If rates get high enough, there's also a very real risk that some mortgage holders will start to experience financial troubles, which could result in an uptick in defaults.Simply put, there are a lot of moving parts here and AGNC Investment isn't appropriate for investors that aren't willing to put in the time and effort to fully understand the company's mortgage focus.Sell AGNC InvestmentThat's the big reason to sell AGNC Investment, or to never even buy it. But below is the graphic that really shows why the stock's high yield, despite recent strong performance, isn't going to be attractive for more conservative dividend investors.AGNC data by YChartsThe blue line is the dividend, which you can see rises swiftly at the start of the graph and then starts a steady decline. If you are trying to live off of the dividends your portfolio generates, that level of variability probably won't work for you. But then look at the purple line, which is the stock price. It has been following the dividend lower, which means dividend investors that spend their dividend checks have been left with less income and less capital.Forget the yield, which has remained high throughout (which is just the basic math of dividend yields) -- AGNC has been a terrible story for most dividend investors. Could the direction of the dividend payment change? Sure, but the variability of the dividend isn't likely to go away.Buy or hold AGNC InvestmentSo why would any investor want AGNC Investment in their portfolio? The answer is that it is really designed to be a total return vehicle, which assumes the reinvestment of dividends. As the chart below shows, while the stock-price-only return is deep in negative territory, the total return is actually positive.AGNC data by YChartsThat makes this a good way for investors to add mortgage exposure to a portfolio that's built around an asset allocation model. That is not what most dividend investors are doing. However, it is what a lot of large institutional investors do, like pension funds and insurance companies. And for the most part, AGNC Investment is a perfectly fine way to add mortgage exposure to an otherwise diversified portfolio, if that's what you are trying to do.Probably not for youWhen you step back and look at the big picture here, AGNC Investment, despite a consistently huge dividend yield, has proven to be a terrible investment for most dividend investors. But investors trying to live off of the income they generate from their portfolios really aren't the company's target market. In other words, most small investors would do well to simply avoid AGNC, even though it could be a good fit for institutional investors that take a total-return approach.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2430036157"}