Reuben Gregg Brewer, The Motley Fool
5 min read
In This Article:
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AGNC Investment has a lofty 16% dividend yield.
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The company went public at $20 per share but now trades for around $9.
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The dividend has declined from a quarterly peak of $1.50 to a current level of $0.36.
AGNC Investment (NASDAQ: AGNC) stands out for one very big reason: Its huge 16% dividend yield. That's dramatically higher than the 1.3% yield of the S&P 500 index (SNPINDEX: ^GSPC) and the 4.1% yield of the average real estate investment trust (REIT). Is that lofty yield as attractive as it looks? The answer is a little complicated.
Putting aside AGNC Investment's business (it is a mortgage REIT, or mREIT) for a second, the stock shows up prominently on just about all lists of high-yield stocks. That's notable because the way an investor analyzes dividend stocks is vastly different from the way a growth stock would be analyzed, as just one example. So the first big question to answer with AGNC Investment is "How good a dividend stock is this REIT?"
The answer for most investors will likely be "Not very good." As the chart above highlights, the dividend rose sharply at its initial public offering (IPO), which is normal for a dividend-paying company, and then started a long-term decline. From the peak to the current level, the dividend has fallen from $1.50 per share per quarter to just $0.36.
The share price followed a similar path, rising to a peak of over $36 as the dividend increased only to start a long decline to about $9 as the dividend was steadily reduced.
Most dividend investors are likely trying to find a stock that can provide them with reliable income to pay for living expenses in retirement. AGNC Investment has not provided that. In fact, if you used the dividends to pay for living expenses, you would have ended up with less income and less capital. That's a really bad outcome.
What's interesting about AGNC is that it doesn't hide the fact that it isn't really a dividend stock. On its home page, it effectively touts total return as its big goal, but with a "substantial yield component." Total return assumes that dividends are reinvested.
The mREIT's first quarter highlights this dynamic in action. The company noted that it had a "2.4% economic return on tangible common equity for the quarter." That was "comprised of $0.36 dividends per common share and $(0.16) decrease in tangible net book value per common share."
