AGNC Investment's Stock Outlook: Will it Recover in 1 Year?

AGNC Investment, a mortgage real estate investment trust, pays a 15.7% forward dividend yield on a monthly basis. However, its stock declined 12% over the past year, with a total return of less than 3%. Despite a lower taxable income, the company still needs to pay out at least 90% of its income as dividends. Its profitability usually improves when interest rates decline, but over the past year, profits and book value declined despite the Federal Reserve reducing benchmark rates.

AGNC Investment Corp. (NASDAQ: AGNC), a mortgage real estate investment trust (mREIT), has long been a favorite among income investors due to its high dividend yield. The company pays a forward dividend yield of 15.7% on a monthly basis, making it an attractive alternative to traditional dividend stocks and the 10-year Treasury, which offers a 4.5% yield [1]. However, over the past year, AGNC's stock has declined by 12%, resulting in a total return of less than 3% even with reinvested dividends.

AGNC's business model differs from traditional REITs. Instead of owning physical properties, AGNC originates mortgages and purchases mortgage-backed securities (MBSes). It generates income by booking interest from these investments. Like other REITs, AGNC must pay out at least 90% of its taxable income as dividends to maintain a lower tax rate [1].

Despite the Federal Reserve's rate cuts, AGNC's profitability and book value have declined over the past year. This is due to higher borrowing costs for purchasing lower-yielding MBSes and increased refinancing activities, which reduced the profitability of its originated mortgages [1]. Analysts expect AGNC's net spread and dollar roll income per share to drop further in the coming years, potentially leading to a decline in its stock price [1].

AGNC is set to report its second-quarter earnings on July 21, with analysts expecting a notable decline in earnings [2]. The projected earnings per share (EPS) is $0.41, marking a 22.65% year-over-year drop. The company's strategic shift towards riskier asset portfolios is attributed to this decrease [2]. The revenue forecast stands at $461.81 million, a significant improvement from the previous year [2].

Investors should closely monitor AGNC's upcoming earnings release and market volatility before making investment decisions. The company's premium valuation and potential future changes in the yield curve and financial conditions warrant caution [2]. While AGNC's high dividend yield remains attractive, its stock price may continue to face downward pressure in the near term.

References:
[1] https://finance.yahoo.com/news/where-agnc-stock-1-084000567.html
[2] https://www.ainvest.com/news/agnc-investment-earnings-preview-revenue-expected-grow-1-246-year-year-2507/