Should You Invest $1,000 in AGNC Investment Right Now?

AGNC Investment (NASDAQ: AGNC) currently offers an eye-popping dividend yield. At 14%, it's more than 10 times the S&P 500's 1.1% dividend yield.

At that rate, a $1,000 investment in the mortgage REIT would generate about $11.60 of dividend income each month (and nearly $140 annually). Here's a look at whether you should buy shares of AGNC Investment right now.

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How safe is AGNC's monster dividend?

AGNC Investment has maintained its current monthly dividend rate of $0.12 per share since lowering it in early 2020. That was one of many payment reductions the REIT has made over the years. AGNC has to reduce its dividend payments when they fall out of alignment with its earnings capacity.

The REIT is currently earning more than enough money to cover its dividend. One metric supporting this view is its net spread and dollar roll income, which totaled $0.42 per share in the first quarter, easily covering the $0.36 per share in dividends it paid out.

However, that was a strong quarter, driven by temporary benefits. CEO Peter Federico stated on the first-quarter conference call, "I would describe that [margin] as being above the long-run economics of the current environment." He commented that, "I would say that probably a good range of expectation over the relatively near term, meaning several quarters, would be high 30s and low 40s." That's still a good range to support the dividend.

Raising capital at attractive rates

Another factor supporting the dividend's sustainability has been the REIT's ability to raise capital at attractive rates. For example, it sold about $400 million of stock during the first quarter when the dividend yield was around 13.5%. It was able to deploy that capital into new mortgage-backed security (MBS) investments at a round a 16% return (after factoring in the associated leverage). "So it's accretive from an earnings perspective," noted Federico on the call.

Federico also pointed out that the company tries to be opportunistic, "waiting for the right opportunity to deploy those proceeds and assets at really attractive return levels." Its patience paid off in the first quarter, when it raised capital that it slowly deployed as the right opportunities arose. Meanwhile, the company maintains a significant liquidity position -- $7 billion in unencumbered cash and MBS -- giving it the flexibility to capitalize on future market opportunities.

An appealing income stream

AGNC Investment has maintained its monthly dividend level for more than five years. It's in a solid position to sustain its current rate, given its earnings capacity and ability to raise capital on an accretive basis to fund new investments. While AGNC is a higher-risk income stock, it's an enticing option for more risk-tolerant investors seeking a monster yield.

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.