AGNC Sold About $1 Billion of New Stock Last Quarter at $10 a Share. Is Today's Lower Price a Better Deal?

AGNC (NASDAQ: AGNC), the world's second-largest mortgage real estate investment trust (mREIT), has increased its share count by 8,310% since its 2008 IPO. That dilution isn't surprising, since mREITs constantly issue new shares to fund their ongoing investments.

However, that strategy works better when there's enough demand to drive its stock higher and offset that dilution. In the third quarter, AGNC raised $992 million by selling 97.6 million shares at an average price of $10.17 per share. But today, its stock trades at about $8. Does that discount -- and its forward dividend yield of 17.5% -- actually make its stock worth buying?

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Why is AGNC struggling?

AGNC usually borrows at short-term rates to buy longer-term mortgage-backed securities (MBS). This business model churns out stable profits when interest rates are low, but it struggles when rising rates boost its short-term borrowing costs and erode the value of its older, lower-yielding MBS. That's why the Fed's 11 consecutive rate hikes in 2022 and 2023 severely reduced its book value per share and net spread and dollar roll income per share, which is a more accurate gauge of an mREIT's profitability than its earnings per share (EPS).

From 2021 to 2025, AGNC's book value per share plunged from $15.75 to $8.88, and sank to $7.13 per share in the third quarter of 2026. Its net spread and dollar roll income per share declined from $3.11 in 2021 to $1.50 in 2025.

The Fed held rates steady in 2024 and 2025, but AGNC's book value and profits didn't immediately bounce back because it takes time to roll off its older MBS from its balance sheet. Its prospects would have brightened this year if the Fed started cutting rates again, but the Iran war and persistent inflation drove it to raise interest rates again this September. That pressure is making AGNC an unappealing investment, even though it pays a double-digit dividend yield.

Why isn't AGNC a bargain yet?

AGNC launched an updated $1 billion buyback plan (about 10% of its market cap) in the third quarter, but it will only start buying back its shares if they drop below its book value. That hasn't happened yet, and its book value could still shrink faster than its stock price.

For now, analysts expect its net spread and dollar roll income per share to dip from $1.54 in 2026 to $1.49 by 2028, but it can still cover its forward dividend rate of $1.44 per share. At $8 per share, it might look like a bargain at five times this year's net spread and dollar roll income, but it's not worth buying until interest rates decline and the macro environment improves.

Leo Sun 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.