The 1 Stock I'd Buy Before AGNC Investment Right Now

AGNC (NASDAQ: AGNC) attracts a lot of attention with its eye-popping forward yield of 12.8%. It might seem like a high-yield trap, but its projected EPS of $1.51 will still cover its forward dividend rate of $1.44. It also looks dirt cheap at seven times forward earnings.

However, AGNC trades at that discount because its earnings are declining. As a mortgage real estate investment trust (mREIT), AGNC buys mortgages and mortgage-backed securities (MBS), earns interest on those investments, and distributes its profits to its investors.

AGNC generates cash by selling its own MBS, then agrees to repurchase them at a set price plus interest at a future date. To profit from those trades, the Fed's short-term rates need to remain lower than its long-term rates. The Fed's interest rate cuts in 2024 and 2025 should have driven those trades in the right direction, but they didn't reduce its MBS yields and borrowing costs at the same rate. As a result, AGNC got stuck taking out loans at higher rates to purchase lower-yielding MBS -- and that imbalance will persist if the real estate market stays chilly.

While AGNC's dividend looks sustainable for now, it could be reduced if its earnings continue to decline and its payout ratio exceeds 100%. So instead of taking a chance on AGNC, it might be smarter to invest in a more stable equity REIT: Vici Properties (NYSE: VICI).

Why is Vici a more reliable REIT?

Equity REITs purchase physical properties, rent them out, and distribute most of that rental income to their investors. Both mREITs and equity REITs need to pay out at least 90% of their taxable income as dividends to maintain a favorable tax rate.

Vici is an experiential REIT that owns 93 casinos, resorts, and other entertainment properties across the U.S. and Canada. Its largest tenants include Caesar's Entertainment, MGM Resorts, and Penn Entertainment.

By locking its tenants into multi-decade leases, Vici has maintained a 100% occupancy rate ever since its 2018 IPO. Most of those leases are pegged to the Consumer Price Index (CPI), allowing Vici to raise rents to keep pace with inflation. It's also a triple-net lease REIT, meaning its tenants must cover their own maintenance, insurance, and property taxes.

That resilient business model has enabled Vici to raise its dividend every year since its IPO. It currently pays a forward yield of 6%, and it expects its adjusted funds from operations (AFFO) per share -- a key profitability metric for equity REITs -- to rise 4%-5% to $2.36-$2.37 in 2025. That will easily cover its forward dividend rate of $1.80 per share.

Vici also still looks reasonably valued at 16 times its trailing AFFO per share. So if you're looking for a simple REIT that pays a high yield but isn't as heavily exposed to mortgages and interest rate swings as AGNC, Vici checks all the right boxes.

Leo Sun has positions in Vici Properties. The Motley Fool recommends Vici Properties. The Motley Fool has a disclosure policy.