Monthly Dividend Stock In Focus: AGNC Investment Corp.

Up to date on Might twenty second, 2025 by Bob Ciura

AGNC Funding Corp (AGNC) has an especially excessive dividend yield of above 16%. By way of present dividend yield, AGNC is close to the very high of our listing of high-yield dividend shares.

As well as, AGNC pays its dividend every month reasonably than quarterly or semi-annually. Month-to-month dividends enable buyers to compound dividends even sooner.

There are 76 month-to-month dividend shares in our database.

You may obtain our full Excel spreadsheet of all month-to-month dividend shares (together with metrics that matter like dividend yields and payout ratios) by clicking on the hyperlink under:

That mentioned, buyers also needs to assess the sustainability of such a excessive dividend yield, as yields in extra of 10% are sometimes an indication of basic enterprise challenges.

Double-digit dividend yields typically sign that buyers don’t imagine the dividend is sustainable and are pricing the inventory in anticipation of a lower to the dividend.

This text will focus on AGNC’s enterprise mannequin and whether or not the inventory appeals to income-oriented buyers.

Enterprise Overview

AGNC was based in 2008 and is an internally managed REIT. In contrast to most REITs, which personal bodily properties which might be leased to tenants, AGNC has a distinct enterprise mannequin. It operates in a distinct segment of the REIT market: mortgage securities.

AGNC invests in company mortgage-backed securities. It generates earnings by accumulating curiosity on its invested property, minus borrowing prices. It additionally information positive aspects or losses from its investments and hedging practices.

Company securities have principal and curiosity funds assured by both a government-sponsored entity or the federal government itself. They theoretically carry much less danger than non-public mortgages.

Supply: Investor Presentation

The belief employs important quantities of leverage to put money into these securities, boosting its capability to generate curiosity earnings. AGNC borrows totally on a collateralized foundation by securities structured as repurchase agreements.

The belief’s objective is to construct worth by way of month-to-month dividends and web asset worth accretion. AGNC has executed effectively with its dividends over time, however web asset worth creation has typically confirmed elusive.

Certainly, the belief has paid over $48 of whole dividends per share since its IPO; the share value at the moment is simply over $8.70. That form of monitor document is extraordinary and is why some buyers are drawn to the inventory.

In different phrases, the belief has distributed money per-share to shareholders of greater than 5 instances the inventory’s present worth.

On April 22, 2025, AGNC Funding Corp. reported its monetary outcomes for the primary quarter of 2025. The corporate introduced a complete earnings of $0.12 per frequent share, which included $0.02 in web earnings and $0.10 in different complete earnings.

The tangible web e-book worth per frequent share decreased by 1.9% from the earlier quarter, ending at $8.25 as of March 31, 2025. AGNC achieved a 2.4% financial return on tangible frequent fairness for the quarter, comprising $0.36 in dividends declared and a $0.16 decline in tangible e-book worth.

The corporate’s web unfold and greenback roll earnings was $0.44 per share, a rise from $0.37 within the prior quarter, reflecting improved earnings from its funding portfolio.

The common asset yield stood at 4.78%, whereas the web curiosity unfold was 2.12%. AGNC maintained a leverage ratio of seven.5x tangible web e-book worth and held $6.0 billion in unencumbered money and Company MBS.

Progress Prospects

The most important downside to mortgage REITs is that rising rates of interest negatively affect the enterprise mannequin. AGNC makes cash by borrowing at short-term charges, lending at long-term charges, and pocketing the distinction. Mortgage REITs are additionally extremely leveraged to amplify returns.

It is not uncommon for mortgage REITs to have leverage charges of 5x or extra as a result of spreads on these securities are usually fairly tight. AGNC at present has a leverage ratio of seven.5x.

In a rising interest-rate setting, mortgage REITs usually see the worth of their investments decreased. Larger charges often trigger their curiosity margins to contract, because the fee acquired is fastened most often, whereas borrowing prices are variable.

Rates of interest surged to 23-year highs final yr as central banks all over the world hiked charges aggressively to scale back inflation. The belief’s e-book worth contracted in latest quarters on account of these strikes.

General, the excessive payout ratio and the risky nature of the enterprise mannequin will hurt earnings-per-share progress. We additionally imagine that dividend progress might be anemic for the foreseeable future.

On the intense aspect, inflation has lastly moderated in most developed international locations, together with the U.S. Because of this, the Fed simply started decreasing rates of interest and expects to scale back additional, from 4.75%-5.0% to 2.75%-3.0% by 2026. If inflation doesn’t rebound, the Fed will seemingly execute as per its steerage.

In that case, AGNC will get pleasure from a powerful tailwind in its enterprise, as its borrowing prices will lower and its curiosity margins will develop.

Dividend Evaluation

AGNC has declared month-to-month dividends of $0.12 per share since April 2020. Because of this AGNC has an annualized payout of $1.44 per share, which equals an especially excessive present yield of 16.3% based mostly on the present share value.

Supply: Investor Presentation

Excessive yields generally is a signal of elevated danger. AGNC’s dividend does carry important danger. AGNC has decreased its dividend a number of instances over the previous decade.

We don’t see a dividend lower as an imminent danger at this level, on condition that the payout was pretty lately lower to account for unfavorable rate of interest actions and that AGNC’s web asset worth seems to have stabilized.

Administration has taken the mandatory steps to guard its curiosity earnings, so we don’t see one other dividend lower within the close to time period, notably on condition that the Fed’s anticipated rate of interest reductions over the subsequent three years will present a tailwind to AGNC.

The payout ratio is predicted to be under 90% of earnings for 2025. If this proves right, there might be no purpose to chop the payout.

Nonetheless, with any mortgage REIT, there’s at all times a major danger to the payout, and buyers ought to preserve that in thoughts, notably given the risky habits of rates of interest in recent times.

Remaining Ideas

Excessive-yield month-to-month dividend-paying shares are extraordinarily engaging for earnings buyers, a minimum of on the floor. That is notably true in an setting of low rates of interest, as different sources of earnings typically have a lot decrease yields.

AGNC pays a hefty yield of 16.3% proper now, which could be very excessive by any normal.

We imagine the REIT’s excessive yield is protected for the foreseeable future, however given the corporate’s enterprise mannequin and interest-rate sensitivity, that is hardly a low-risk scenario.

Whereas AGNC ought to proceed to pay a dividend yield many instances increased than the S&P 500 Index common, it’s not a pretty choice for risk-averse earnings buyers.

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