It's Been 45 Months Since AGNC Investment Corp. Set Its All-Time High. Here's 1 Reason to Buy Today.

AGNC Investment (NASDAQ: AGNC) hit its all-time high closing price of $11.74 per share on June 8, 2021. That was about 45 months ago. Shares are currently well below that price point at around $10.50 per share. This lower price point is why the real estate investment trust (REIT) offers such a monster dividend yield of 13.8%. Its payout is more than 10 times higher than the S&P 500's dividend yield of 1.3%.

The mortgage REIT has been able to maintain its massive payout for the past 60 months in a row. That stability should continue, which is a good reason to consider buying shares for income right now.

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A straightforward business model

AGNC Investment is a leading investor in agency residential mortgage-backed securities (MBS). Government agencies like Fannie Mae and Freddie Mac guarantee those mortgage pools against credit loss. That makes them very low-risk, fixed-income investments. However, MBS are also relatively low-return investments (low-to-mid-single-digit yields).

Mortgage REITs like AGNC Investment can boost their returns using leverage (i.e., issuing debt or debt-like instruments to buy more MBS). However, this strategy also increases risks. AGNC Investment uses several risk-management strategies to protect its portfolio from changes in interest rates and other market risks.

The REIT's strategy has been very successful over the past several years. It has earned enough income to cover its costs and its dividend payments. That has allowed the REIT to maintain its monthly dividend for the past 60 months in a row.

More stability expected

While AGNC Investment has a relatively straightforward business model, there's a bit more complexity when it comes to the factors impacting its ability to maintain its dividend. CEO Peter Federico stated on the REIT's fourth-quarter earnings conference call that he didn't want investors to look at its earnings measures as "a driver of our dividend policy because it is not." Instead, he noted, "We look at the economics of our portfolio from a dividend perspective."

Federico commented:

The first thing we look at from a dividend perspective is what is the total cost of capital hurdle rate, if you will, versus our expected return at current valuation levels of the portfolio. When you think about the total cost of capital, I think that's really critical as you think about what is the cost to run our business to pay our common dividends, to pay our preferred stock dividends and our operating expenses.

In other words, AGNC looks at what it needs to earn on its leveraged MBS portfolio to cover its operating expenses, preferred stock dividends, and common stock dividends to gauge the stability of its monthly dividend payment. The CEO noted on the call that the return hurdle rate it needed to achieve during Q4 was 16.7%. While that sounds like a lot, the company is currently earning returns in the 17% to 18.5% range. "And that aligns very well with our total cost of capital, and that's one of the reasons why, in looking at it that way, we've been able to maintain our current dividend," the CEO stated.

As long as the REIT can continue earning returns above its cost of capital, it can keep paying dividends at the current level. Right now, market conditions are ideal for that to happen. Federico also stated on the call:

As we begin 2025, the supply and demand outlook for Agency MBS appears to be well balanced. In addition, and most important to our business, we expect Agency spreads to benchmark rates to remain in the same well-defined trading range, thus providing levered and unlevered investors very attractive return opportunities.

Given that view, the REIT's high-yielding payout looks sustainable as long as market conditions don't take an unexpected turn.

The stock might be down, but the dividend isn't

AGNC Investment's stock hasn't hit a new all-time high in almost four years. The good news is that the REIT has maintained its big-time dividend throughout that period, which seems likely to continue. Because of that, it's a good stock to buy for those seeking a very lucrative monthly income stream. While it's riskier than some high-yielding dividend stocks, it also offers a much higher reward potential via its monster income stream.

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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.