Is AGNC Investment a Better Dividend Stock Than Healthpeak Properties?

Key Points

• AGNC Investment and Healthpeak Properties both pay high-yielding monthly dividends.

• AGNC has maintained its payment for more than five consecutive years.

• Healthpeak recently raised its payment and could continue increasing its dividend in the future.

• 10 stocks we like better than AGNC Investment Corp. ›

AGNC Investment (NASDAQ: AGNC) offers one of the highest dividend yields at nearly 15%. That's over 10 times higher than the S&P 500's current near-historic low yield of less than 1.2% and more than twice the yield of Healthpeak Properties (NYSE: DOC), around 6.5%.

However, that higher yield alone doesn't mean it's a better high-dividend REIT. Let's take a closer look at these big-time dividend stocks.

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A monster monthly income stream

AGNC Investment holds only Agency mortgage-backed securities (MBSes), which are residential mortgage pools backed by Fannie Mae, Freddie Mac, and Ginnie Mae. These low-risk investments yield modest returns in the mid-single digits.

AGNC boosts its return potential by investing in MBSes on a leveraged basis primarily through repurchase agreements. It can be a very lucrative investment strategy. In the current environment, AGNC expects to earn a return on equity of 18% to 20% on new investments. That's more than enough to cover its operating costs and current dividend level. As long as its returns remain above its costs, AGNC can continue to pay its ultrahigh-yielding monthly dividend.

The mortgage REIT has paid the same dividend rate for more than five consecutive years. That's impressive, considering all the volatility in interest rates during that period. AGNC has been able to proactively navigate changes in the market environment, enabling it to continue generating a high enough return to maintain its dividend.

However, if market conditions deteriorate significantly, AGNC might need to reduce its dividend, as has occurred in previous downturns. Another potential risk is that AGNC regularly sells more stock to finance new MBS purchases. While this expands its investment portfolio, it has not increased shareholder value. For example, its asset portfolio rose from $58 billion in mid-2023 to $82.3 billion in mid-2024; however, the tangible net book value per share fell from $9.39 to $7.81. Issuing shares at lower prices dilutes existing investors, reducing the per-share value of their holdings. Since its IPO in 2008, AGNC's share price has dropped nearly 50%. On a more positive note, its dividend income has more than offset these losses, helping it deliver a 10.8% average annual total return since the IPO.

A healthy dividend stock

Healthpeak Properties owns a diversified portfolio of healthcare real estate, including outpatient medical buildings, life science labs, and senior housing. Its tenants are top healthcare systems, physician groups, biopharma companies, and medical device makers.

The REIT's portfolio produces stable and steadily rising rental income backed by long-term leases with annual escalation clauses. Rent escalation clauses alone should grow its income by around 3% per year. Meanwhile, the REIT can often capture even higher rental rates as legacy leases expire because of faster market rent growth.

Healthpeak Properties currently pays out about 75% of its adjusted funds from operations (FFO) via its monthly dividend. That gives the REIT a comfortable cushion, while allowing it to retain cash to fund new income-generating healthcare property investments.

The stable and rising income supports Healthpeak's resilient dividend. The REIT maintained a steady dividend over the past five years, allowing it to slowly lower its payout ratio as FFO increased. However, it revamped its dividend policy this year, switching to a monthly payment schedule and raising the dividend by 2%. Ongoing rent increases and portfolio growth should help support more dividend growth in the future.

Healthpeak strives to grow shareholder value by focusing on increasing its FFO per share. This approach should enable the REIT to continue growing its share price and dividend, which could help it generate a healthy total return over the long term.

Dividend yield isn't everything

AGNC Investment offers a substantial monthly income stream. This payment contributes to the company's total return and may help continue offsetting potential declines in its stock price. If income generation is a priority, AGNC would be an alluring option, although investors should be aware that this income stream may decline in the future if AGNC reduces its dividend again.

However, while I like income, I don't think that a higher-yielding income stream makes AGNC a better dividend stock than Healthpeak Properties. The healthcare REIT pays a dividend that is likely to be more stable and should continue to grow in the future. That makes it a better option for those seeking to preserve and grow the value of their investment while collecting a growing stream of monthly dividend income.

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