AGNC Investment (AGNC -0.53%) attracts a lot of investing attention for one reason: It has a massive 15% dividend yield. But dividend investors shouldn't run out and buy this stock. It wasn't a dividend buy in 2024, and it won't be one in 2025, either. In fact, it probably will never be a great investment option for dividend investors.
Here's what you need to know.
AGNC's troubling dividend track record
AGNC Investment's dividend yield is around 15% right now. That sounds like an anomaly, but it isn't. The yield has been around 10% or higher for most of the real estate investment trust's (REIT's) existence. In fact, the average yield, including the period when the dividend was just starting to be built up after the company's initial public offering (IPO), is about 14%!
AGNC Dividend Yield data by YCharts
Real estate investment trusts are structured to pass income on in a tax-advantaged manner to shareholders. So it would be understandable if the high yield here got dividend investors excited. Only dividend yield doesn't tell you the whole dividend story. This chart looking at the company's quarterly dividend payments and the share price is far more informative.
Dividend yield is a pretty simple math equation: You divide the annualized dividend by the stock price. If the dividend is falling, as it has been for AGNC Investment, the only way for the yield to remain high is for the stock price to fall, too.
That is what has happened. Given that most dividend investors are likely trying to live off of the dividends they collect, which effectively means they are being spent, AGNC Investment would have left dividend investors with less income and a smaller nest egg. That is not a good outcome.
Why does AGNC Investment exist?
For dividend investors, AGNC Investment was a terrible stock to own in 2024, and it will be a terrible stock to own in 2025. It will probably be a terrible stock to own forever ... if you are a dividend investor.
That doesn't mean it is a terrible stock for every investor. In fact, if you reinvest the dividends that have been paid, AGNC Investment has been a pretty good investment.
The chart highlights two vastly different outcomes. On a stock price-only basis, AGNC Investment's price is down about 50% from its IPO. Total return, which assumes dividend reinvestment, is hugely positive at a gain of over 400%.
Essentially, the massive dividend payments have more than made up for the stock price weakness if you reinvested the dividend. But this means that anyone salivating at the huge 15% dividend yield with the thought of using that cash to pay for living expenses will be making a big investment mistake if they buy this stock.
AGNC Investment's real goal is total return, as well as providing investors exposure to the mortgage market, given that the REIT owns mortgage securities. If you use an asset allocation model that includes mortgage exposure and reinvest dividends, well, AGNC Investment could be a great choice for you. Only that's not what most dividend investors do. It is the type of approach taken by large institutional investors like pension funds.
You need to know what you own with AGNC Investment
It is easy to get so enamored with a huge dividend yield that you overlook very real problems at a company. To be fair, there really aren't huge problems at AGNC Investment. It is a reasonably well-run mortgage REIT.
The thing that investors risk overlooking is that the mortgage REIT isn't designed to generate income so much as to provide a strong total return. The dividend is just a part of the total return equation. If you are looking at AGNC Investment and its huge yield as 2024 draws to a close, make sure you understand what it is really offering investors.
