AGNC Investment Corp. AGNC offers a current dividend yield of 14.9% compared with the industry’s 10.6%. Along with a lucrative dividend yield, shares of AGNC have appreciated 32.7% in the past year compared with the industry's growth of 14.5%. 

Price Performance

This publicly traded mortgage real estate investment trust (mREIT) offers favorable long-term stockholder returns and a huge dividend yield. Income-seeking investors have a large appetite for REIT stocks, as U.S. law requires REITs to distribute 90% of their annual taxable income in the form of dividends. Hence, this may entice many investors to buy the stock. AGNC’s third-quarter 2024 results reflect continued strength.

Is now the right time to invest? To answer this, it’s essential to delve into the details and evaluate various factors at play.

A Look at AGNC’s Q3 Results

AGNC Investment's financial performance improved in the third quarter. The company reported a comprehensive net income of 64 cents per share against a comprehensive loss of 13 cents per share in the prior quarter. 

As of Sept. 30, 2024, the company’s tangible net book value per common share (BVPS) was $8.82, up 5% sequentially. This increase, together with dividend payments of 36 cents per share for the quarter, resulted in an economic return on tangible common equity of 9.3% against negative 0.9% in the previous quarter.

The positive return and increasing profitability reflect AGNC Investment's capacity to sustain its high-yielding payment. The company's average asset yield on its portfolio was 4.73% in the third quarter, up from 4.69% reported in the prior quarter. The company also concluded the quarter with strong liquidity of $5.1 billion, reflecting its capacity to maintain its dividend in the upcoming period.

AGNC’s Attractive Payout

AGNC has a record of paying monthly dividends. The company currently has a payout ratio of 67%.

AGNC is not the only dividend-paying stock among Zacks Industry — REIT and Equity Trust. Companies like Annaly Capital Management NLY and Ellington Credit Company EARN also offer solid dividend options.

NLY has an annual dividend yield of 13.1%, while EARN has 14.5%.

AGNC has access to attractive funding across a broad spectrum of counterparties and financing conditions. As a result, it has the flexibility to enhance its portfolio. 

Dividends aside, AGNC has a share repurchase plan in place. In October 2024, the company’s board of directors terminated the existing stock repurchase plan (which had $1 billion in remaining capacity and was set to expire on Dec. 31, 2024) and replaced it with a new plan authorizing it to repurchase up to $1 billion of common stock through Dec. 31, 2026. 

The company plans to buy back shares only when the repurchase price is lower than the then-current estimate of tangible net book value per common share.

Lower Rates to Support AGNC’s Performance

AGNC’s financials have been adversely impacted since early 2022, when the Federal Reserve began its interest rate hiking cycle. The negative return and falling profitability raised concerns about the company’s capacity to sustain its high-yielding payment.

Higher rates led to a surge in AGNC's borrowing costs, which resulted in a net interest loss during the nine months ended Sept. 30, 2024. Due to spread risk, high rates also affected the book value of the company's investments. From Sept. 30, 2022, to Sept. 30, 2024, the company’s book value per share declined 5.9%.

On Thursday, the Fed announced a second rate cut this year after lowering the interest rate by 50 basis points in September. The interest rates were lowered by 25 basis points this time, bringing down the federal funds rate to a range of 4.5-4.75%. 

As the central bank lowered the rates, long-term bond yields declined, resulting in a fall in mortgage rates. Per a Freddie Mac report, the average rate on a 30-year fixed-rate mortgage dropped to 6.79% as of Nov. 7, 2024, from 7.50% a year ago. 

With more interest rate cuts likely in 2025, this should help boost AGNC's net interest spread and the book value of its portfolio. This should provide the company with the much-needed boost.

Sales Estimates for 2024 & 2025

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AGNC’s Favorable Long-Term Outlook

AGNC Investment primarily focuses on leveraged investments in Agency residential mortgage-backed securities (RMBS), including residential mortgage pass-through securities and collateralized mortgage obligations. A U.S. Government agency or a U.S. Government-sponsored enterprise (GSE) guarantees the principal and interest payments for such investments.

As a levered and hedged investor in Agency MBS, AGNC's return opportunities are most favorable when Agency MBS spreads to benchmark rates are wide and stable and interest rates and monetary policy are less volatile.

The long-term outlook for Agency MBS remains favorable. Agency MBS spreads have remained in a range that supports positive long-term risk-adjusted returns for leveraged investors like AGNC. At these levels, Agency MBS provides a significant incremental yield over U.S. Treasuries and investment-grade corporate paper, driving demand for Agency MBS. Given the positive supply-demand dynamic for Agency MBS and the improved monetary policy outlook, present returns and prospects for AGNC look favorable.

Is AGNC Stock Worth Considering Now?

The ultra-high dividend yield and regular payout appear attractive to investors seeking high-income funds. With the falling interest rate, AGNC's earnings pressure should be alleviated as funding costs come down, allowing the company to increase its dividend payout.

That could be a strong tailwind for the company in the upcoming period. However, volatility in the mortgage market, unfavorable changes in the form of the yield curve and deterioration of the generic financial conditions might affect AGNC's performance. The company also has a track record of lowering dividends during stressful times.

From a valuation standpoint, AGNC Investment appears expensive relative to the industry. The company is currently trading at a premium with a forward 12-month price-to-tangible book (P/TB) multiple of 1.04X, above the industry average of 0.91X.

Price-to-Tangible Book

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Also, analysts are bearish on AGNC stock currently. For 2024 and 2025, AGNC’s earnings have been revised downward over the past month.

Estimate Revision Trend

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Considering the pros and cons of AGNC, we may conclude that investors should refrain from rushing to buy AGNC right now. Instead of just banking on its lucrative dividend yield, they should analyze the upcoming interest rate changes and the mortgage market for a more appropriate entry point. Its premium valuation also warrants caution.

The stock currently carries a Zacks Rank #4 (Sell).  You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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AGNC Investment Corp. (AGNC) : Free Stock Analysis Report

Annaly Capital Management Inc (NLY) : Free Stock Analysis Report

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