Weighing the Pros and Cons of AGNC Investment
When it comes to mortgage real estate investment trusts (mREITs), AGNC Investment (NASDAQ: AGNC) is a complex beast that requires a deep understanding before making a decision to buy or hold its stock. With an ultra-high 15.5% dividend yield, it’s tempting to jump in, but investors should beware of the potential pitfalls.
A History of Decline
A single graph tells the story: both dividend payouts and stock price have been falling for years. Shareholders who bought in for the income and spent their dividends rather than reinvesting them now have less income and less capital. This outcome is far from ideal, and most income-focused investors will want to avoid AGNC Investment or sell it if they own it.
The Allure of High Yield
While a 15.5% dividend yield is enticing, it’s essential to consider the bigger picture. The dividend may not be sustainable, and the history suggests it can fluctuate wildly. Most dividend investors will want to steer clear of AGNC Investment.
A Different Perspective
However, AGNC Investment is not a bad investment for all investors. As a mortgage REIT, it buys mortgages rolled up into bond-like securities, making it similar to a mutual fund. The value of the company is equal to the value of its portfolio of mortgage securities. From a total return perspective, AGNC Investment has done reasonably well over time, making it a solid way to add mortgage exposure to portfolios.
The Math Behind the Returns
Despite its less-than-desirable dividend history, AGNC Investment has generated a solid total return over time. Since its IPO in 2008, it has paid out $48.64 per share in dividends, offsetting the capital loss of roughly $10.70 per share. For investors who prioritize income and are willing to accept some capital loss, AGNC Investment might be worth holding onto.
A Nuanced View
AGNC Investment is not your typical high-yield REIT. It requires extra effort to understand its return profile, making it unsuitable for most investors. However, for those who grasp its complexities, it might be a perfect fit. Just remember, buying solely based on its ultra-high dividend yield is likely to lead to disappointment.
Alternative Investment Opportunities
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