AGNC Investment’s current dividend yield of 20% may have caught the eye of many dividend investors. However, before you decide to invest, there are several factors to consider regarding the risks and sustainability of such a high yield.
Yield and Price Fluctuations
AGNC’s dividend yield is currently one of its most attractive features for individual investors. However, high yields often come with high risks. A yield of this magnitude should be approached with caution, as it may indicate concerns about the sustainability of the dividend.
As a stock’s price decreases, the dividend yield increases. This mathematical relationship has become apparent as AGNC’s share price has plummeted more than 40% from its 52-week high.
Market and Business Challenges
The company is a mortgage real estate investment trust (REIT), facing significant headwinds due to rising interest rates and a turbulent housing market. The entire REIT sector is currently out of favor with investors, and AGNC is no exception.
The company’s book value per share, a key metric for mortgage REITs, has also decreased significantly, from $9.39 at the end of the second quarter to $8.08 in the third quarter.
A History of Dividend Cuts
A look at AGNC’s dividend history reveals a trend of consistent dividend cuts over the past decade. As the dividend decreased, so did the share price. Despite the decrease in dividends, AGNC’s yield has remained in the double digits due to the inverse relationship between dividend yield and share price.
This history of dividend cuts is concerning for investors seeking a reliable passive income stream for retirement.
The Right Investment for the Right Investor
Mortgage REITs like AGNC are complex investments that are not suitable for most individual investors. These types of investments are better suited for institutional-level investors, such as insurance companies, who focus more on asset allocation.
Even with the possibility of a bull market on the horizon, individual investors seeking dividend income should be cautious and consider avoiding AGNC Investment.
Is AGNC Right for Your Portfolio?
While the current 20% dividend yield of AGNC Investment may seem tempting, there are significant risks and challenges associated with this investment.
The company’s share price has decreased significantly, and it is facing headwinds from a turbulent market and rising interest rates. AGNC has a history of dividend cuts, and the REIT sector is currently out of favor.
These factors, combined with the complexity of mortgage REITs, make AGNC a risky investment for most individual investors, who may be better off looking elsewhere for dividend income.
