AGNC Investment (AGNC 0.10%) is a very complicated company, but many investors are still lured in by the astonishingly large 14%-plus dividend yield. Before you buy this mortgage real estate investment trust (REIT), there are a few things you need to consider very carefully. The price you pay is one of those things.

Don't buy AGNC Investment if you want consistent dividends

Before getting to the price you pay for AGNC Investment, it is important to tackle the dividend yield. The S&P 500 index is yielding a scant 1.2%, and the average REIT is yielding roughly 3.9%. That will make AGNC's more than 14% yield look mighty enticing to investors trying to maximize the income they generate from their portfolio.

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Real estate investment trusts are designed to pass income on to investors via dividends. So high yields are fairly common in the sector. However, 14% is not a common figure, and it highlights the additional risks that investors are taking on when they buy this REIT. From a dividend perspective, that risk is highlighted perfectly in the chart below.

AGNC data by YCharts.

Most dividend investors are looking to create a reliable and even growing income stream from their portfolio. AGNC, after a quick rise in the dividend, has seen it fall steadily for years. The stock price has tracked the dividend lower.

This is not what most dividend investors have in mind when they buy a dividend stock. This chart isn't quite as bad as it looks because AGNC has paid out much more in dividends than it has lost in share price since its initial public offering (IPO). That has resulted in an attractive total return (which assumes dividend reinvestment) over time. But if investors spent those dividends along the way, they would have still ended with less income being generated and less capital.

If you are looking to live off of the dividends your portfolio throws off, you need to tread very carefully with AGNC Investment. But what about that $8.41 stock price?

AGNC Investment is worth what its portfolio is worth

As a mortgage REIT, AGNC Investment owns a portfolio of mortgages that have been rolled up into bond-like securities. The value of that portfolio is what the company is worth.

Management provides that figure quarterly, labeling it tangible net book value per share. At the end of the fourth quarter of 2024, AGNC's tangible book value was $8.41 per share. That number is neither good nor bad; it is simply what the value of the portfolio is on a per-share basis at a specific point in time.

The mortgage securities in AGNC's portfolio trade all day long, so its tangible net book value changes daily. It can be affected by a host of factors, like interest rates, mortgage repayment rates, and housing market dynamics.

But ultimately, the market decides what those securities are worth at any given time. If the REIT's stock price is above its tangible net book value, then investors are buying the company for more than it would be worth if it were liquidated. Or, to put it another way, they are overpaying.

AGNC chief financial officer Bernice Bell highlighted this issue during the company's third-quarter 2024 earnings conference call: "...in the third quarter, we issued $781 million of common equity through our at-the-market offering program. The significant increase in ATM issuance was consistent with the substantial price-to-book premium of our common stock throughout the quarter and drove material book value accretion for the benefit of our common stockholders."

The "accretion" mentioned by Bell is because every penny above tangible net book value that investors paid for those newly issued shares is advantageous to the company. It allows management to buy securities over and above what it would be able to buy at the current market rate for the mortgage securities it owns, which is its tangible net book value per share.

Unless you have a very strong conviction that AGNC's tangible net book value is about to move higher, paying above that figure means you are overpaying for the stock. Note that tangible net book value per share fell $0.41 in the fourth quarter of 2024, a 4.6% decline.

Should you pay more than tangible net book value for AGNC?

If you have a value bias, the answer is very clear here: Do not pay over tangible net book value for AGNC. You would be better off waiting until the REIT is trading below that figure. The only time you would want to buy it for more than its tangible net book value is if you expected that value to go up.

And then you have to take into consideration the dividend yield and dividend history here. This is a very complex investment that most investors, particularly conservative dividend investors, will probably be better off avoiding.