Should You Buy AGNC Investment While It's Below $10?

As an investor, you might be wondering if now is the right time to buy AGNC Investment (AGNC) while its stock price is below $10. With a forward yield of 15%, it's no surprise that AGNC often catches the eye of income-oriented investors. But is the current price a bargain, or is there more to consider before making a decision? Let's dive into the details to help you make an informed choice.



AGNC Investment is a mortgage real estate investment trust (REIT) that invests in mortgage-backed securities (MBS) backed by government or government-sponsored agencies. It generates income through the spread between its financing costs and the yield of its MBS portfolio. AGNC uses short-term financing, usually in the form of repurchase agreements, to buy longer-dated MBS and hedges out short-term financing rates to better match the duration of the MBS in its portfolios.



While AGNC's dividend yield is attractive, it's essential to consider the company's complex business model and the risks associated with mortgage REITs. AGNC's stock price has struggled in recent years, with its price down about 44% over the past five years. Although the dividend has been paid consistently, it hasn't changed since April 2020, raising concerns about its sustainability.

Interest rates and the yield curve play a significant role in determining AGNC Investment's dividend sustainability. When interest rates rise, the value of MBS falls, reducing AGNC's tangible book value (TBV) and potentially narrowing its net interest spread. However, AGNC hedges its funding costs, which helps maintain its net interest spread. As of Q3 2024, AGNC's TBV has stabilized at $8.82 per share, indicating that its dividend is sustainable, given the current interest rate environment and a normal yield curve.



AGNC's underperformance relative to the broader market and its peers over the past five years can be attributed to several factors. Firstly, the stock has struggled due to a 44% decline in its price, despite paying a steady $0.12 monthly dividend since April 2020. This decline is directly correlated to the drop in its tangible book value (TBV), which fell 45% between the end of 2021 and the end of 2023, primarily due to higher interest rates and the widening spread between mortgage-backed securities (MBS) and Treasury bonds. Additionally, AGNC's dividend yield, while attractive at 15%, has not changed since April 2020, raising concerns about its sustainability.

In conclusion, while AGNC Investment offers an attractive dividend yield, its complex business model and recent underperformance should give investors pause. Before making a decision, consider the risks associated with mortgage REITs and the potential impact of interest rate changes on AGNC's dividend sustainability. As always, it's essential to do your own research and consult with a financial advisor before making any investment decisions.

Disclaimer: Action AlertsPLUS, managed by the author, holds no positions in AGNC Investment.