Why AGNC Investment Corp. is a High-Yield Gem to Buy Now: Learning from Warren Buffett’s Past Missteps

Investors often look to Warren Buffett’s successes for inspiration, but his missteps can be equally instructive. One of his notable oversights involved underestimating the potential of certain asset classes, such as real estate investment trusts (REITs), which he dismissed as overly complex or speculative. Today, a similar opportunity exists in AGNC Investment Corp. (AGNC), a mortgage REIT offering a 9% dividend yield—a compelling high-yield play that’s currently out of favor on Wall Street. Let’s dissect why this could be a winning contrarian bet.

The Lesson from Buffett’s Mistake

Warren Buffett famously avoided tech stocks like Amazon and Google in their early days, citing their lack of a “moat” and his discomfort with rapid technological change. Similarly, he has historically steered clear of REITs, calling them “too leveraged” or “too dependent on interest rate cycles.” While his caution is understandable, such an approach can miss pockets of value in volatile markets.

AGNC fits this mold: a high-yield stock with a 9% dividend yield (based on its $1.44 annualized dividend at a $16 share price), currently trading at a discount due to concerns about rising mortgage rates and liquidity risks. Yet, like the overlooked tech stocks of Buffett’s era, AGNC’s fundamentals and strategy suggest it could rebound strongly—if investors are willing to look past short-term noise.

Why AGNC Is Undervalued Now

1. Dividend Stability Despite Challenges

AGNC has maintained its $0.12 per share monthly dividend since its 2008 IPO, with total dividends paid exceeding $14.3 billion through Q1 2025. Even during Q1’s volatile quarter—which saw its tangible book value (TBV) dip 1.9% to $8.25 per share—the company’s total stock return with dividends reinvested hit 7.8%, outperforming broader equity markets.

2. Strategic Leverage and Liquidity

AGNC’s $6.0 billion in unencumbered liquidity (63% of tangible equity) and 7.5x “at-risk” leverage (well within its target range) position it to weather interest rate volatility. CEO Peter Federico emphasized in Q1 earnings that the company’s “wide Agency MBS spreads” now offer “compelling return opportunities,” both leveraged and unleveraged.

3. Undervaluation Metrics

AGNC’s P/E ratio of 5.4 (as of April 2025) sits far below its historical average, while its $0.72 annual dividend (yielding ~9%) is supported by a payout ratio of 48%, well within sustainable limits.

Why Now is the Time to Buy

Catalyst 1: Widening Mortgage Spreads

The Federal Reserve’s April 2025 tariff announcement widened mortgage spreads, creating buying opportunities for AGNC. Management noted that these spreads now offer 2.12% annualized net interest margins, up from 1.91% in Q4 2024.

Catalyst 2: Conservative Risk Management

AGNC’s portfolio remains 96% invested in 30-year fixed-rate Agency MBS, a low-risk asset class backed by government guarantees. Its 91% interest rate hedging coverage further mitigates volatility.

Catalyst 3: Contrarian Sentiment

The stock’s recent decline—driven by TBV volatility and macroeconomic fears—has created a buying opportunity. At its current price, AGNC trades at a 30% discount to its 2023 peak, despite a stronger balance sheet and dividend resilience.

Risks to Consider

• Interest Rate Sensitivity: Rising rates could compress net interest margins further.
• Liquidity Risks: While AGNC’s $6 billion liquidity buffer is robust, extreme market stress could test it.
• Regulatory Changes: New policies (e.g., mortgage-backed security reforms) could impact its business model.

Conclusion: A High-Yield Play with a Margin of Safety

AGNC Investment Corp. offers a rare combination of high yield (9%), proven dividend stability, and undervaluation at a time when its core business—Agency MBS—appears poised for recovery. While risks exist, the company’s conservative leverage, liquidity, and management’s track record justify a contrarian stance.

Warren Buffett once said, “Be fearful when others are greedy, and greedy when others are fearful.” Today, AGNC epitomizes that principle. With a P/E of 5.4, a payout ratio of 48%, and $6 billion in liquidity, it’s a stock worth buying while Wall Street looks the other way.

Investors seeking income and resilience in a volatile market should take note: AGNC could be the high-yield gem Buffett overlooked—and the one you shouldn’t.