Better Dividend Stock: AGNC Investment vs. EPR Properties

If you're seeking to collect passive income through high-yield monthly dividends, AGNC Investment (NASDAQ: AGNC) and EPR Properties (NYSE: EPR) are alluring options. These real estate investment trusts (REITs) offer compelling yields, with AGNC at 14.5% and EPR at 6.5%.

Here's a side-by-side comparison of these high dividend REITs to determine which is better for sustainable passive income.

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A high-risk, high-yielding payout

AGNC recently declared its latest monthly dividend of $0.12 per share. It has maintained that monthly rate for over five consecutive years.

The company generates the cash to cover its lucrative monthly dividend by investing in Agency mortgage-backed securities (MBS), pools of residential mortgages guaranteed against credit losses by Fannie Mae, Freddie Mac, and Ginnie Mae. Those protections make Agency MBS very low-risk investments. They also generate relatively low fixed-income returns (low-to-mid single-digit yield). The mortgage REIT boosts its return potential by investing in MBS on a leveraged basis, primarily through repurchase agreements.

This can be a very lucrative investment strategy. AGNC's CEO, Peter Federico, highlighted on the company's second-quarter earnings conference call a few months ago that it was earning a return on equity in the 18% to 20% range on new leveraged investments. That was comfortably above its current cost of capital (operating costs and dividend payments), allowing it to continue paying its dividend rate.

However, the company's returns and costs are moving targets. If its returns fall and costs rise, the REIT might need to reset its payout to better align with that environment. It has had to do that several times in the past, including in early 2020 when the pandemic caused market conditions to deteriorate quickly. While the company's use of leverage can increase its returns, it also heightens its risk profile.

Stable and steadily rising

EPR Properties declared its latest monthly dividend of $0.295 per share a few weeks ago. Unlike AGNC, EPR has been steadily increasing its dividend over the past several years. While it also encountered difficulties during the pandemic -- it suspended its dividend payment in May 2020 and then reinstated it at a lower level in July 2021 -- the REIT has been steadily increasing its payout from the reset level. It gave investors raises of 10% for 2022, 3.6% for 2024, and 3.5% for 2025.

The REIT backs its high-yielding monthly dividend with the stable and steadily rising cash flows produced by its experiential real estate portfolio. The REIT currently owns over 300 properties leased to more than 200 tenants across 43 states and Canada. Its properties include movie theaters, eat-and-play venues, attractions and cultural properties, fitness and wellness facilities, and ski resorts. It primarily owns properties secured by long-term triple-net leases (NNN), which require tenants to cover all property operating costs, including real estate taxes, routine maintenance, and building insurance. As a result, it collects very stable and predictable rental income.

EPR Properties pays out about 70% of its steady cash flow in dividends each year. That gives it a healthy cushion while allowing it to retain cash to fund new income-generating experiential property investments. The REIT also has a rock-solid investment-grade balance sheet, giving it additional financial flexibility to fund new investments.

The company expects to invest between $200 million and $300 million each year on acquisitions, development projects, and redevelopments. It had already spent $86.3 million through the first six months of this year and lined up $109 million of future experiential development and redevelopment projects it expects to fund over the next 18 months. This investment rate should grow its earnings per share by 3%-4% per year, supporting a similar dividend growth rate.

An ultra-high-yield versus steady growth

Both AGNC Investment and EPR Properties offer high-yield monthly dividends. If you prioritize maximizing your payout and can tolerate higher risk, AGNC may be a suitable option for you. However, if you want a steadier, growing income stream, EPR is the better choice for more conservative income investors.

Matt DiLallo has positions in EPR Properties. The Motley Fool has positions in and recommends EPR Properties. The Motley Fool has a disclosure policy.