AGNC Pays $0.12 Every Month. Here's How Much You'd Need to Invest to Collect $1,000 a Month.
Key Points
AGNC’s mortgage-buying business faces tough interest rate headwinds.
Its dividend is sustainable, but its stock price declines are erasing those gains.
AGNC (NASDAQ: AGNC), one of the largest mortgage real estate investment trusts (mREITs), pays a monthly dividend of $0.12 per share. At $9 per share, that equals a forward dividend yield of 16%. So if you invest $75,000 in the stock today, you can collect $1,000 per month.
Should you buy AGNC for its massive yield?
That seems like an impressive return, but AGNC's stock has also declined nearly 15% year to date, offsetting most of its dividend payments. That's because AGNC's business is highly sensitive to interest rates, which the Fed recently raised for the first time in three years.
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AGNC buys mortgages and mortgage-backed securities (MBS), collects interest on those investments, and distributes at least 90% of its taxable income as dividends to maintain a lower tax rate. To protect itself from another housing market crash, it allocates 89% of its $97.2 billion portfolio to Agency MBS assets (backed by Fannie Mae, Freddie Mac, or Ginnie Mae).
But to grow its profits, AGNC must earn enough interest from its long-term MBS to fund its short-term MBS purchases. It also generates cash by selling its own MBS to counterparties and agrees to buy them back at a set price plus interest in the future.
AGNC can maintain that balancing act as long as interest rates and the housing market remain stable. But that's clearly not the situation right now -- and AGNC's stock will remain under pressure until the macro environment stabilizes. Its dividends are sustainable, but investors should realize that the pressure on its stock could easily offset its monthly income.
Leo Sun has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.