Wednesday, July 19, 2023

Can AGNC Finally Sustain Its Double-Digit Yield?

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Can AGNC Finally Sustain Its Double-Digit Yield?

Marc Lichtenfeld, Chief Income Strategist, The Oxford Club

Marc Lichtenfeld

AGNC Investment Corp. (Nasdaq: AGNC) is one of the most requested stocks in the Safety Net column because of its high yield. Today, the mortgage broker yields 14%, so you can understand why it's so popular.

But does it deserve its adulation from the income investing crowd?

More importantly, can those investors rely on that juicy 14% yield?

When I last looked at AGNC's dividend safety in January, the company had not yet reported fourth quarter 2022 results. At that time, net interest income (NII) was forecast to be $1.5 billion for 2022, falling to $1.3 billion in 2023.

AGNC didn't come close to hitting last year's projection.

NII totaled $965 million, down from $1.29 billion the year before. The good news is that NII is now expected to rise to $1.37 billion this year.

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There's more good news. AGNC paid shareholders $869 million in dividends, or 90% of NII.

For a mortgage real estate investment trust, anything below 100% is solid. This year's estimated $894 million in dividends will be just 65% of the projected $1.37 billion in NII - an even better margin.

So the dividend looks fine if AGNC comes anywhere close to the estimates.

However, AGNC has a horrid track record when it comes to its dividend.

Chart: AGNC Annual Dividend per Share
 

All things considered, here's what I have to say about the most requested stock in the Safety Net column...

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