Is AGNC Investment Worth Buying Now for Its 16.04% Dividend Yield?

One of the most closely watched aspects of AGNC Investment Corp.’s AGNC financial profile is its dividend policy. AGNC has a record of paying monthly dividends, currently yielding a staggering  16.04% compared with the industry’s average of 11.3%. It currently sits at a payout ratio of 75%.

AGNC Investment Corp. Dividend Yield (TTM)

AGNC Investment Corp. dividend-yield-ttm | AGNC Investment Corp. Quote

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 and replaced it with a new plan authorizing it to repurchase up to $1 billion of common stock through Dec. 31, 2026.

AGNC Investment's peers, Annaly Capital Management NLY and Ellington Credit Company EARN, are also providing investors with solid dividend options. Annaly Capital Management has an annual dividend yield of 14.87%, whereas Ellington Credit Company has a dividend yield of 20.25%.

Coming back to AGNC, this publicly traded mortgage real estate investment trust (mREIT) offers favorable long-term stockholder returns and a gigantic 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 as dividends. Hence, this may entice many investors to buy the stock.

Along with lucrative dividend yield, shares of AGNC Investment have appreciated 7.2% in the past year against the industry's decline of 3.8%. Meanwhile, Annaly Capital Management has risen 11.5%, while Ellington Credit Company has fallen 19% over the same time frame.

Price Performance

Given the strength, many investors must be tempted to buy the AGNC stock. But is now the right time to invest? To answer this, it is essential to delve into the details and evaluate various factors at play.

AGNC Investment & Interest Rates

AGNC’s performance and prospects are significantly influenced by the interest rate environment. Decisions related to the Federal Reserve’s monetary policy have a big impact on the company's performance, and analyst projections are heavily influenced by market expectations for possible rate cuts.

AGNC Investment’s financials have been adversely impacted since early 2022, when the Fed 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.

The Fed has lowered the interest rates by 100 basis points in 2024 and has kept rates steady since then. However, the central bank hinted at two rate cuts in 2025. Given this, mortgage rates are easing. Per a Freddie Mac report, the average rate on a 30-year fixed-rate mortgage was 6.64% as of April 3, 2025, down from 6.65% in the previous week and 6.82% in the same week a year ago.

The decline in mortgage rates is a positive development, and borrowers are responding with a rise in purchase application. This will likely help boost AGNC's net interest spread and the book value of its portfolio. 

Agency MBS: A Targeted Approach by AGNC

AGNC Investment has maintained its focus on agency mortgage-backed securities (RMBS), a strategy that has positioned it as a strong player in this specialized market segment.

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

The fundamental outlook for fixed income, particularly agency MBS assets, has shown signs of improvement lately. AGNC Investment’s management believes that the agency MBS market could benefit from a combination of factors, including a steepening yield curve and reduced rate volatility.

Against this improved investment backdrop, AGNC generated a positive economic return of 13.2% in 2024, driven by the company’s compelling monthly dividend. Its 2024 performance shows that it can generate robust investment returns when Agency MBS spreads are wide and steady.

Although the market is extremely competitive, the company's focus on agency MBS puts it in a position to possibly profit from positive trends. However, execution will be crucial to achieving these advantages.

How to Approach AGNC Investment’s Stock Now?

AGNC’s ultra-high dividend yield and solid rebound potential in a declining mortgage rate environment are compelling reasons to keep it on your watchlist.

With expected interest rate cuts in 2025, AGNC's net interest spread and book value are expected to get a boost. That could be a strong tailwind for the company, supporting its financials in the upcoming period

Sales Estimates

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 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 1.05X, above the industry average of 0.89X. AGNC Investment peers Annaly Capital Management and Ellington Credit Company have forward 12-month P/TB of 0.96X and 0.70X, respectively.

Price-to-Tangible Book TTM

Considering the pros and cons of AGNC, we may conclude that investors should refrain from rushing to buy the AGNC stock 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 #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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