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AGNC Investment Corp: Can This 14.5% Dividend Machine Survive Rising Rates?

TrendPulse FinanceFriday, May 23, 2025 9:14 am ET

87min read

The stock market is a rollercoaster, but right now, one name is standing tall in the face of chaos: AGNC Investment Corp. (AGNC). With a dividend yield of 14.5% as of May 2025, this agency mortgage REIT has turned into a cash cow for income investors. But here's the catch: Can it keep this pace as interest rates remain stubbornly high? Let's dive into the data and decide if AGNC is a buy, a hold, or a sell.

The Dividend Machine: Consistency Amid Volatility

AGNC's dividend story is a masterclass in stability. Since January 2023, the company has paid a $0.12 monthly dividend, translating to an annualized $1.44. This has kept its yield above 14% even as its stock price fluctuates. But here's the kicker: The dividend hasn't budged for over two years, even as mortgage REIT peers like Annaly Capital (NLY) and Cherry Hill Mortgage (CHMI) have trimmed payouts.

This consistency is no accident. AGNC specializes in agency-backed residential mortgage-backed securities (MBS), which are government-guaranteed, meaning credit risk is minimal. Instead, the company bets on the net interest margin—the spread between the interest it earns on MBS and the cost of borrowing via repurchase agreements.

The Payout Ratio Problem: A Red Flag or a Red Herring?

The math here is tricky. AGNC's payout ratio—the percentage of earnings paid out as dividends—hit 300% in Q1 2025, according to its latest earnings report. How is that possible? Let's break it down:

Dividends declared for Q1 2025: $0.36 per share.
Comprehensive income: Just $0.12 per share.

At first glance, this looks catastrophic. But AGNC isn't a typical company. Its earnings are volatile because they include unrealized gains/losses on its MBS portfolio. The real story is in its economic return on equity—a non-GAAP metric AGNC uses to show performance. For Q1, this was 2.4%, including the dividend payout and a slight dip in tangible book value.

The company's $6 billion in liquidity (including unencumbered assets) acts as a safety net. And AGNC's strategy of issuing shares to raise cash—like its $509 million equity offering in Q1—buoys its balance sheet. So, while the payout ratio is alarming, the dividend isn't collapsing… yet.

The Rate Race: Why AGNC Might Win

The biggest threat to AGNC's dividend is the Federal Reserve's interest rate policy. Here's why:
- High rates shrink the net interest margin because borrowing costs rise faster than MBS yields.
- Low rates boost margins by lowering borrowing costs.

The Fed's pause at 5.5% since March 2023 has kept pressure on AGNC. But here's the silver lining: Fed rate cuts are expected by late 2025, according to economists. If rates drop, AGNC's margins could rebound, supporting higher dividends.

The Bull Case: Buy Now, Before Rates Turn

Here's why AGNC is a buy today:
1. 14.5% yield is a steal compared to the 2.8% average yield of the broader REIT sector.
2. The $9.90 share price is near its 52-week low, offering a buying opportunity.
3. Interest rate cuts in 2025 could supercharge its margins.
4. AGNC's $8.25 tangible book value per share (as of Q1 2025) acts as a floor.

The Bear Case: Rate Risks and Liquidity Limits

The risks are clear:
- If the Fed hikes rates further, AGNC's net interest margin could shrink, forcing dividend cuts.
- A prolonged housing slump could depress MBS prices.
- The 300% payout ratio in Q1 is unsustainable long-term without higher earnings.

Final Verdict: AGNC Is a Buy, But Keep an Eye on Rates

AGNC's 14.5% yield is too juicy to ignore, especially if you're willing to bet on a Fed pivot. Here's how to play it:
- Buy now if you believe rates will drop by year-end.
- Set a stop-loss at $9.00 to protect against a margin squeeze.
- Monitor AGNC's Q2 earnings—if the dividend stays at $0.12, it's a win.

This isn't a “set it and forget it” investment. AGNC is a high-risk, high-reward bet that demands vigilance. But in a world of 2% CDs and 10-year Treasuries, 14.5% is worth the gamble—if you're ready to pull the trigger.

Action stations! If you're in it for income and can stomach volatility, AGNC is a name to circle. But don't just take my word—do the math and decide for yourself. The clock is ticking… and so are the dividends!

Note: Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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