AGNC Investment (AGNC 1.26%) has an eye-catching dividend yield of almost 14%. The first thing that most investors will probably think upon reading that sentence is that this is a choice dividend stock. But that's not exactly true, and the reason is fairly complex. Here's who shouldn't buy AGNC Investment, and who might want to buy it now.

Most dividend investors shouldn't buy AGNC Investment

Generally speaking, dividend investors are looking for companies that pay reliable dividends. Usually the ultimate goal is to generate income that can be used to pay for living expenses, often in retirement. It would be even better if the dividend stocks being considered had a history of increasing their dividends over time. Throw in some price appreciation, even if it is only modest, and income investors will probably be very happy.

AGNC data by YCharts.

One graph is all you need to see to understand why AGNC Investment isn't going to fit the bill for most dividend investors. Notice how there was a swift rise in the dividend early in AGNC Investment's existence. That was followed by a rapid ascent in the share price. The dividend and share price then both went on a multi-year descent. The yield has remained high throughout the span because of the basic math of dividend yields -- a declining share price pushes up the dividend yield.

This looks like something that most income investors would describe as a dividend trap. If you bought it, you would end up with less dividend income and less capital. That's a terrible outcome if you're trying to live off the income your portfolio generates. If that's your goal, you should probably avoid AGNC Investment today and in the future. The track record here just doesn't match up to other income options you can buy.

Who should buy AGNC Investment?

There is a subtle twist here, however. AGNC Investment has paid out more in dividends over time than it has lost in price, which leads to a positive total return -- if ("if" is the important word) you dividend reinvest in the company. That just isn't how most dividend investors look at the world, but it is how asset allocators consider portfolio performance.

AGNC data by YCharts.

So AGNC Investment could be worth buying now if you take an asset allocation approach. But what does this company offer such investors? The answer is exposure to the mortgage sector because this company is a mortgage real estate investment trust (REIT). Essentially, all it does is buy mortgages that have been pooled into bond-like investments. It earns the difference between its operating costs, including the cost of borrowing, and the interest it earns on the securities it holds.

In the 2024 fourth quarter, AGNC Investment paid $0.36 per share in dividends and generated $0.37 per share in net spread and dollar roll income, which is basically the cash it has to pay the dividend. That's pretty tight, but for the full year, the dividend was $1.44 per share, while the cash available to pay that dividend was $1.88. That's a much more comfortable margin of safety.

The truth is that dividend coverage is always a little touch and go here, as the dividend cuts show, but AGNC Investment has paid a consistent dividend for several years now. As long as that dividend is getting reinvested, asset allocating investors should probably end up pleased with this mortgage REIT. In fact, if history is any guide, even if there is a dividend cut, the total return outcome could still be attractive as long as the dividend is getting reinvested.

Know what you own with AGNC Investment

AGNC Investment is not a dividend stock that will let you sleep well at night. You could even argue that it isn't much of a dividend stock at all, given the history of dividend cuts. But that doesn't mean it is a bad investment. It just means that it isn't exactly appropriate for investors trying to live off the income they generate. If you are a total-return-focused investor who's willing to reinvest your dividends, AGNC Investment can comfortably provide you with mortgage exposure to fill out your asset allocation model.