Is AGNC Investment Corp a Buy After Its Latest Earnings Report?

AGNC Investment (NASDAQ:AGNC) had a rough third quarter. Interest rates surged, causing fixed-income investors to turn very bearish. As a result, the mortgage REIT posted a negative 12.7% economic return during the period, while its spread income declined for the third straight quarter.

However, it wasn't all bad news. The company did capitalize on an opportunity to raise nearly $1 billion in equity capital at a significant premium to its book value. Meanwhile, returns on Agency MBS (its investment focus) remain strong.

Here's a closer look at the quarter and whether the mortgage REIT is a buy after its earnings report.

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First, the bad news

There weren't many positives in AGNC's third-quarter financial results. The mortgage REIT's net spread and dollar roll income declined from $0.40 per share in the second quarter to $0.37 per share in the third quarter. That's just above the $0.36 per share it paid in dividends ($0.12 monthly dividend). It was the third straight quarterly decline ($0.42 per share in the first quarter).

Meanwhile, its tangible net book value per share tumbled 16.9% to $7.13. That's due to a -12.7% economic return during the period and the $0.36 per share in dividends it paid.

Its leverage ratio also increased significantly (from 7.4x at the end of the second quarter to 7.9x at the end of the third quarter). That's above its 7.0x to 7.5x target range.

The company battled very challenging market conditions. CEO Peter Federico stated in the earnings press release that, "Fixed income markets experienced significant pressure in the third quarter, particularly in the final weeks of September, as fixed income investor sentiment turned decidedly bearish, interest rates increased sharply, and interest rate volatility spiked." That hit Agency MBS investments hard, as they were the worst-performing sector in the Bloomberg U.S. Aggregate Bond Index during the quarter. Since Agency MBS is the company's sole investment focus, this underperformance drove the -12.7% economic return on tangible common equity.

Glimmers of hope

While the third quarter was a rough period for the Agency MBS market and AGNC Investments, there were a couple of positives worth pointing out for the REIT. For example, even though its net spread income declined to $0.37 per share, that still covered its dividend. Further, this metric alone doesn't determine the sustainability of its dividend (it was below the payout in the third and fourth quarters of 2025 at $0.35 per share).

What matters more is the returns it can earn on its leveraged MBS investments. Federico noted in the third-quarter earnings release that despite the challenging conditions, "there are a number of reasons for optimism with respect to the outlook for Agency MBS once volatility in the Treasury market subsides." The biggest is that the return profile of Agency MBS is "more attractive at current valuation levels, as mortgage spreads to benchmark rates are approaching the upper end of their multi-year trading range." He also noted that the fundamentals for Agency MBS investments are more favorable today than they were at the start of the third quarter. These factors help support a constructive outlook for Agency MBS investments.

Finally, AGNC Investment capitalized on an opportunity to raise additional equity capital at an attractive level during the quarter. The REIT was added to the S&P MidCap 400 Index during the quarter. That announcement and the subsequent index rebalancing drove higher trading volumes in its stock, which the company capitalized on by issuing $992 million of additional equity during the quarter at a significant premium to its tangible net book value per share. That provided it with additional liquidity to capitalize on the currently attractive Agency MBS market.

A high-risk, high-yielding REIT

At its core, AGNC Investment is a leveraged bet on the mortgage market. Its use of leverage increases its returns, thereby raising its risk profile. When conditions become more challenging, as they were in the third quarter, its leverage puts pressure on its stock price and earnings. If you want to make a leveraged bet on the mortgage market, buying AGNC Investment after its earnings report could yield a high total return from its lucrative monthly dividend and the potential for a recovery in its earnings and stock price as the market normalizes. However, the quarter also clearly demonstrates that the REIT isn't the best investment for more risk-averse investors seeking a bankable passive income stream.

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.