The Hidden Truth About AGNC Investment’s Dividend Yield
When it comes to real estate investment trusts (REITs), dividend investors often focus on the yield, but not all REITs are created equal. AGNC Investment (NASDAQ: AGNC) is a prime example, boasting a staggering 14.9% dividend yield. However, appearances can be deceiving, and income investors need to exercise caution.
A Closer Look at AGNC’s Dividend History
Before diving into AGNC’s business, let’s examine its dividend history. The chart below reveals a telling story. After a rapid increase in dividend size, it steadily decreased, mirroring the stock price. Meanwhile, the dividend yield remained elevated, making AGNC appear like a high-yield dividend stock even as income and share price declined.
The Reality Behind AGNC’s Performance Goals
AGNC Investment is transparent about its objectives, aiming to provide “Favorable long-term stockholder returns with a substantial yield component.” However, this phrase requires careful consideration. While dividend investors might focus on yield, AGNC is actually targeting total return, which assumes dividend reinvestment over time. In other words, AGNC isn’t primarily concerned with providing a large dividend yield, but rather a substantial total return.
The Verdict: AGNC Isn’t a Yield Investment
AGNC Investment’s dividend history and performance goals make it clear that it’s not a yield investment. If you’re looking to live off your portfolio’s income, AGNC might not be the best fit. Even if the dividend increases in the future, there’s always a risk it will fall again.
Who Should Invest in AGNC?
So, who should consider AGNC Investment? If you’re using an asset allocation model and seeking mortgage exposure, AGNC could be a good fit. However, you’ll need to reinvest dividends to maximize returns. This approach typically appeals to institutional investors like pension funds.
The Bottom Line
AGNC Investment may not be a great dividend stock, but that’s not its intention. Instead, it’s a solid total return vehicle for those invested in the mortgage sector. Just be aware of its true nature before adding it to your portfolio.
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