Is AGNC Investment Stock a Buy Now?

At around 17%, AGNC Investment (NASDAQ: AGNC) has one of the highest dividend yields around. While that is certainly attractive for income-oriented investors, the bigger question is whether or not the stock is a buy. After all, yields that high can sometimes be a red flag.

Navigating a complicated environment

AGNC is a mortgage real estate investment trust (REIT) that holds a portfolio of agency mortgage-backed securities (MBSes). Given that its holdings are backed by government agencies such as Fannie Mae and Freddie Mac, it carries de minimus credit risk. However, the stock is far from risk-free.

Mortgage REITs carry a number of risks. Chief among them is interest rate risk. When mortgage rates rise, the value of older MBSes with lower yields will decline. This dynamic is captured in a mortgage REIT's tangible book value (TBV), which represents the value of its investment portfolio. When mortgage rates shot higher after the Federal Reserve began raising rates and unwinding its own MBS portfolio that it acquired as part of quantitive easing, AGNC's TBV plunged, as did its stock. From the end of 2021 until the end of 2023, AGNC's TBV sank 45% from $15.75 per share down to $8.70 per share.

Ahead of its first-quarter 2025 earnings, AGNC revealed that its TBV per share at the end of the quarter sat at $8.25. That was down from $8.41 at the end of 2024. It also estimated that its TBV was between $7.75 and $7.85 per share as of April 9.

The decline in AGNC's TBV can be attributed to the reaction of the bond market to President Donald Trump's tariffs. The haphazard nature in which the tariffs have been rolled out and delayed has shaken the world's confidence in the U.S. and in Treasury bonds as a safe haven. Instead of investors running to Treasuries given the uncertainty of the economy, they instead sold, spiking Treasury yields in the process. As is typical, mortgage rates followed suit and also climbed higher.

Image source: Getty Images.

While there has been a lot of noise in the bond market, AGNC could still be in a decent position moving forward if the Fed reacts and starts cutting interest rates or if it even steps into the markets and starts buying securities. Trump has called for the Fed to slash rates, but Fed Chair Jerome Powell wants a clearer picture on the impact of tariffs before taking action. The administration consistently changing policies isn't helping, nor is the inflationary impact of tariffs. However, if the economy starts heading into a recession, there is a good chance the Fed will act.

AGNC could benefit from the Fed lowering rates in two ways. First, it could lower mortgage rates, helping prop up its TBV. Second, lower short-term rates would reduce funding costs and widen the spread between short- and long-term interest rates. AGNC generates income from the spread between MBSes and short-term funding costs (along with the help of hedges and leverage), and overall, a steeper yield curve would benefit it.

That said, the possibility of the government looking to privatize Fannie Mae and Freddie Mac adds another level of uncertainty. Federal Housing Finance Agency Director Bill Pulte dodged the question of whether this was on the table at his confirmation hearing, while U.S. Treasury Secretary Scott Bessent has publicly said they could become part of a new U.S. sovereign wealth fund. If they were privatized, it likely would increase the spread between mortgage rates and Treasuries, which would be another negative for AGNC and the value of its MBS portfolio.

Is he AGNC stock a buy?

While its 17% yield is tempting, right now there is a lot of uncertainty in the mortgage market. AGNC's book value has already taken a hit, so the question is, where does it go from here? Any easing actions by the Fed could be a positive, while any government actions to privatize Fannie Mae and Freddie Mac would be a negative. The yield curve, meanwhile, has already begun to steepen.

Taken altogether, AGNC is an intriguing high-yield option, but one that is starting to carry increased risk. As such, investors should only look to hold positions if they are comfortable with the risks.

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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.