AGNC Investment Corporation offers high dividend yield

AGNC Investment Corporation offers a high dividend yield of 14.3%, making it attractive for investors seeking passive income. The company pays monthly dividends and is one of the highest-yielding stocks available. Despite its high dividends, AGNC's overall performance has struggled in recent years. Stabilizing interest rates could help improve its share price. AGNC operates as a mortgage real estate investment trust (mREIT). It buys mortgage-backed securities (MBS), which are bundles of home loans sold to investors. These securities are generally safe, backed by entities like Fannie Mae and Freddie Mac. AGNC’s high dividends are possible through leverage; the company borrows money to invest more than it would be able to with just its own funds. However, investing in AGNC comes with risks. The company is sensitive to changes in interest rates, making its financial situation more complicated. AGNC borrows money short-term while investing in longer-term MBS, which can lead to financial strain as interest rates rise. Since 2022, AGNC has seen only a 1.6% annual return, a sharp drop compared to its previous performance before rising rates. While AGNC’s interest income has more than doubled, its borrowing costs have surged, exceeding interest income in 2023. This pressure has also led to a 46% decline in its book value per share since 2021. Investors wary of interest rate fluctuations might want to think twice before investing in AGNC. On a positive note, AGNC is seeing improvements. The yield on its MBS portfolio has risen to 4.77%. If interest rates begin to decline, AGNC's borrowing costs and book value could improve. Currently, analysts expect potential interest rate cuts later this year, which would be beneficial for AGNC. Overall, AGNC Investment appears compelling at first glance because of its high dividends. Historically, it has shown a solid average annualized return of 7.3%. However, due to recent challenges with rising rates, short-term investors may consider AGNC for a potential rebound, although it remains a risky choice. Long-term investors seeking stable income may want to look elsewhere.