Better Dividend Stock: Realty Income vs. AGNC

Realty Income (NYSE: O) and AGNC (NASDAQ: AGNC) are both popular among income-seeking investors. Realty Income, which owns a portfolio of over 15,500 properties across the U.S., the U.K., and seven European countries, is one of the world's largest real estate investment trusts (REITs). AGNC, a leading mortgage real estate investment trust (mREIT), owns a $94.8 billion portfolio of mortgage-backed securities (MBS) and mortgages.

As REITs, Realty Income and AGNC must distribute at least 90% of their taxable income to investors to maintain their lower tax rates. But which high-yielding stock is a better buy?

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Both stocks are sensitive to interest rates

Rising interest rates affect Realty Income and AGNC differently. For Realty, higher rates make it more expensive to buy new properties and create macro headwinds for its tenants. But despite those periodic challenges, its occupancy rates have never dropped below 96% since its IPO in 1994. In fact, its year-end occupancy rate rose from 98.6% in 2023 to 98.9% in 2025, with growth from stronger tenants offsetting store closures at weaker ones.

AGNC only owns mortgages and MBS, not physical properties. It allocates most of its portfolio to Agency MBS assets, which are backed by Fannie Mae, Freddie Mac, or Ginnie Mae. It generates most of its profits by earning interest on those investments. It also generates cash by selling its own MBS and agreeing to buy them back at a set price plus interest at a future date. For those trades to remain profitable, the market's short-term borrowing costs must remain lower than its long-term ones.

Both companies will benefit from lower interest rates. It will become cheaper for Realty Income to purchase new properties and maintain high occupancy rates, and it will be easier for AGNC to maintain a high net interest rate spread in its MBS trades. Lower interest rates will also naturally drive investors from CDs and T-bills toward higher-yielding REITs.

Which stock is a better buy?

Realty Income pays a forward yield of 5.3%. For 2026, it expects its adjusted funds from operations (AFFO) per share to rise 2%-3% to $4.38-$4.42, which will easily cover its forward dividend rate of $3.24. At $61, it trades at just 14 times this year's AFFO per share.

AGNC pays a much higher forward yield of 14.6%. That yield seems high, but analysts expect its earnings per share (EPS) to rise 4% to $1.55 in 2026 and cover its forward dividend rate of $1.44. At $10, it also looks like a bargain at six times this year's earnings -- but its near-term growth could be choppy because the Fed's rate cuts in 2024 and 2025 didn't reduce its MBS yields and borrowing costs at the same rate. In other words, it's still taking out loans at higher rates to purchase lower-yielding MBS in this chilly real estate market.

AGNC pays a higher yield, but I'd personally stick with Realty Income in this unpredictable market. Its business model is simpler, its payout ratio is lower, and its investors don't need to fret over complex MBS trades and interest rate spreads.

Leo Sun has positions in Realty Income. The Motley Fool has positions in and recommends Realty Income. The Motley Fool has a disclosure policy.