Should You Buy AGNC Investment (and Its 14% Yield) While It's Below $10?

Motley Fool11-02

AGNC Investment is a mortgage REIT with a massive yield. The Federal Reserve's shift toward monetary easing has led the stock higher over the past year. The 14%+ dividend yield still ...

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Is a breakout on the way?","collect":0,"end_time":0,"defaultTopTitle":"fool.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4110":"抵押房地产投资信托","BK4585":"ETF&股票定投概念","BK4588":"碎股","AGNC":"美国资本代理公司"},"translate_title":"当AGNC Investment（及其14%的收益率）低于10美元时，您应该购买它吗？","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"AGNC":1,"US10Y.BOND":1,"US12M.BOND":1,"US2Y.BOND":1,"US30Y.BOND":1,"US3Y.BOND":1,"US5Y.BOND":1,"US6M.BOND":1,"US7Y.BOND":1,"US912797HE00.BOND":0.6},"content_text":"AGNC Investment is a mortgage REIT with a massive yield.\n\n\n\n\n\n\n\nThe Federal Reserve's shift toward monetary easing has led the stock higher over the past year.\n\n\n\n\n\n\n\nThe 14%+ dividend yield still comes with elevated risks, even if AGNC Investment breaks out above $10.\n\nShares of AGNC Investment (AGNC) have risen nearly 40% over the past year. But when you add the mortgage real estate investment trust's (REIT's) huge 14.5% dividend yield to the mix, its total return (which assumes dividend reinvestment) was an even more impressive 60% or so.That's a huge total return and easily beats the 42% total return of the S&P 500 index. Is there more to come as AGNC Investment's stock price bounces up against the $10 price level?What does AGNC Investment do?There are two important facts to glean from AGNC Investment being a mortgage REIT. First, REITs are designed to pass income on to shareholders in a tax-advantaged fashion. A REIT can only remain a REIT if it pays out at least 90% of its taxable income as dividends. So dividends are a very important piece of the puzzle with AGNC Investment. Second, AGNC invests in mortgages.AGNC data by YChartsA property-owning REIT is fairly simple to understand. It buys a physical asset (some kind of building) and leases it out to a tenant, collecting rent along the way. That rent is used to fund dividends. A mortgage REIT buys mortgage securities, which are often bond-like investments that are made up of mortgages that have been pooled together into a single interest-paying security. Very often leverage is employed in an effort to enhance returns.All in, AGNC Investment's cash flow is the difference between the interest it earns on its portfolio of mortgage securities and the costs it incurs to buy them (that includes management expenses and interest expenses). That's very different from owning a property.AGNC Investment reports what amounts to a net asset value, which it calls tangible book value. Tangible book value, like NAV, is the value of AGNC Investment's portfolio divided by the number of shares it has outstanding. At the end of the third quarter of 2024, the tangible book value was $8.82 per share. The stock, however, is trading closer to $10 per share.AGNC Investment Corp.\" current_price=\"9.31\" daily_high=\"9.45\" daily_low=\"9.29\" default_period=\"FiveYear\" dividend_yield=\"15.47%\" exchange=\"NASDAQ\" fifty_two_week_high=\"10.85\" fifty_two_week_low=\"8.20\" gross_margin=\"100.00\" logo=\"https://g.foolcdn.com/art/companylogos/mark/AGNC.png\" market_cap=\"$8B\" pe_ratio=\"6.52\" percent_change=\"\" symbol=\"AGNC\" volume=\"23,911,754\">Is AGNC Investment worth buying?For starters, mortgage REITs are fairly complex businesses. A lot of things can influence the price of a mortgage security, including interest rates, housing market dynamics, mortgage repayment rates, and even the year in which a mortgage bond was created, among other things. Unless you are willing to take the time to learn about the mortgage REIT sector, you probably shouldn't go anywhere near a REIT like AGNC Investment. And even if you do take the time to understand the mortgage REIT sector, it will still be very difficult for you to track AGNC Investment's portfolio.Then there's the lofty 14.5% dividend yield. While it looks incredibly enticing, the yield appears to be leading investors to assign AGNC Investment a value that exceeds the value of its actual portfolio of assets (its tangible book value). So at nearly $10 per share, investors are basically overpaying. It seems likely that the tangible book value will act as an anchor to the stock price, which helps explain why the stock is bouncing off of $10 right now.Leading up to the Federal Reserve's 50 basis point interest rate cut, Wall Street was projecting a notable reversal in the direction of interest rates. But subsequent to that cut, the outlook has become less sanguine. Interest rates play a big role in how bonds are valued. If interest rate cuts aren't forthcoming as expected during AGNC Investment's hefty stock price run, then a move above $10 seems like it will be harder to achieve.AGNC data by YChartsThere's one more problem here. AGNC Investment's dividend history has been pretty dismal for a long time, with a clear trend of cuts in the rearview mirror. That's been accompanied by a declining stock price. If you were trying to live off of the income your portfolio generated, this would have been a terrible outcome. And it wouldn't be worth the risk to buy this REIT now even if you thought it might break out above $10. There is clearly a very significant risk that the dividend won't be reliable given how unreliable it has been in the past.A special kind of REIT investmentHere's the thing. While AGNC Investment is probably a bad choice for a dividend investor, it is not a bad mortgage investment. Reinvesting the huge dividend more than makes up for the stock price decline and results in a solid total return. That dividend is what turbocharged the return relative to the S&P 500 index over the past year. But a material price advance from here will likely require more interest rate cuts. That doesn't appear to be what Wall Street is expecting at the moment.If you are a dividend investor, reaching for AGNC Investment's huge yield is likely a risky mistake. Despite that fact, if you are focused on total return, it could be an interesting way to add mortgage exposure to a diversified portfolio. However, expecting the stock price to rise much from here seems like a risky proposition, too.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0},"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":"4.29.2","shortVersion":"4.29.2","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/2480817081"}