AGNC Investment Just Notched Its 75th Straight Monthly Dividend and Currently Yields 13%+. Here's What Q2 Earnings Revealed.

AGNC Investment (NASDAQ: AGNC) has become a remarkably consistent dividend stock. The real estate investment trust (REIT) recently hit a milestone of 75 consecutive months of paying the same dividend rate ($0.12 per share). That's impressive, considering all the volatility in the mortgage and interest rate markets over the past few years.

Here's a look at the mortgage REIT's recent second-quarter financial results and what they reveal about the future of its more than 13%-yielding monthly dividend.

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A strong quarter despite challenging market conditions

AGNC Investment reported $0.52 per share of comprehensive net income during the second quarter and $0.40 per share in net spread and dollar roll income. Both metrics were above the REIT's dividend payout this quarter ($0.36 per share, or $0.12 per month). Meanwhile, its book value increased by $0.20 per share, or 2.4%, to $8.38 per share. When adding dividend income to the increase in book value, AGNC Investment generated an economic return of 6.7% during the period.

That's impressive, considering the market environment. CEO Peter Federico highlighted in the earnings press release that "the investment environment in the second quarter continued to be challenging, as escalating rhetoric and hostilities between the United States and Iran largely dictated financial market performance." Elevated energy prices and supply chain constraints "caused Treasury yields to increase, the yield curve to flatten, and the market's monetary policy expectations to pivot from rate cuts to rate hikes."

While that drove up mortgage rates, reducing the projected Agency MBS supply during the quarter, demand for these low-risk mortgage investments remained strong. That created "a positive technical backdrop that supported Agency MBS performance and drove spreads to benchmark rates tighter."

The outlook for Agency MBS investments

While the second quarter was a positive environment for Agency MBS investments, market conditions can change rapidly. Mortgage spreads have already declined from their recent peaks. However, they're still at historically elevated levels. As a result, Agency MBS offer compelling value relative to other fixed-income investments, especially corporate bonds. That drives Federico's view that "favorable dynamics should be supportive of Agency MBS performance over the near to intermediate term and position AGNC to continue to deliver strong risk-adjusted returns for our stockholders."

The CEO dove deeper into the current economic backdrop for MBS investments during its second-quarter conference call. He noted that, at the current spread, AGNC Investment can earn a return on equity in the 15% to 17% range by leveraging its capital at a multiple of 7.0 to 7.5. He highlighted that it "aligns really well with the economics of our dividend." The REIT can raise capital at a roughly 13% yield based on its current stock price of $11 per share, which is at a significant premium to its current book value. It can then lever that capital and earn a mid-to-high double-digit return in the current environment. That drives its continued confidence in the monthly dividend rate.

The dividend stability should continue

AGNC Investment has now maintained its current dividend rate for 75 straight months. While the economic environment remains challenging, it's generating strong returns to sustain its dividend. While an abrupt change to the return economics poses a future risk to the dividend, it appears safe for now.

Matt DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.