This Nearly 16%-Yielding Dividend Stock Has Paid Out $16 Billion Since 2008. Here's Why I'm Not Worried About the Next Payment.

AGNC Investment (NASDAQ:AGNC) has paid out more than $16 billion in dividends since its 2009 IPO. That's a massive amount of cash for a company that currently has a $10.8 billion market cap. However, with its dividend yield approaching 16%, it's flashing warning signs that the payout might not be sustainable.

Here's why I'm not worried about the mortgage REIT's next monthly dividend payment.

Investing in a high-quality asset class

AGNC Investment is the second-largest residential mortgage REIT by market cap, behind Annaly Capital Management (NYSE:NLY). It ended the second quarter with a $97.2 billion investment portfolio (99% Agency MBS). While Annaly has a larger overall portfolio with $109.4 billion in assets, its MBS portfolio is smaller at $95 billion. Annaly also invests in residential credit assets ($10.4 billion) and mortgage servicing rights ($4.1 billion).

Agency MBS are very low-risk investments because government agencies like Fannie Mae guarantee these pools of residential mortgages against credit losses. They provide investors with a low fixed-income return (currently in the mid-single digits). Mortgage REITs boost their returns by investing in MBS on a leveraged basis. That leverage enhances their returns -- AGNC's return on equity was in the 15% to 17% range in the second quarter -- while increasing their risk profiles. Those high returns are one of the reasons why mortgage REITs typically have such high dividend yields (Annaly's is currently above 15%).

A solid track record through the last cycle

AGNC has paid dividends every quarter since its IPO. It has maintained its current monthly rate since May 2020, when it reset its dividend to the current level during the pandemic. That's one of many dividend cuts the REIT has made over the years due to the impact of changing interest rates on its returns and earnings.

While the REIT has had to cut its dividend in the past, I'm not worried about the November dividend payment (it already declared its next payment for October). One reason is that the company's current returns "aligns really well with the economics of our dividend," stated CEO Peter Federico on the second-quarter conference call. While interest rates have risen since he made those comments, returns should also increase. The company's payout fared just fine during the last Federal Reserve interest rate cycle, from March 2022 to July 2023, when the Fed raised rates by 5.25 basis points. Its current tightening cycle likely won't see it hike rates anywhere near that much.

While I'm not worried about the next dividend, I wouldn't bank on it forever

I'm pretty confident that AGNC Investment will continue to maintain its dividend for the foreseeable future. It has navigated significant volatility over the past few years, yet has maintained its dividend. As long as that payout remains in alignment with its earnings, it's safe. However, that doesn't mean it can sustain its current payout forever. That's why investors need to monitor its earnings closely and review its quarterly call for hints that things are starting to get out of alignment. There's always the risk that AGNC will eventually reduce its dividend again.

Matt DiLallo 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.