Is AGNC Investment's Huge Yield as Attractive as It Seems?

AGNC Investment (NASDAQ: AGNC) stands out for one very big reason: Its huge 16% dividend yield. That's dramatically higher than the 1.3% yield of the S&P 500 index (SNPINDEX: ^GSPC) and the 4.1% yield of the average real estate investment trust (REIT). Is that lofty yield as attractive as it looks? The answer is a little complicated.

What do investors want from AGNC Investment?

Putting aside AGNC Investment's business (it is a mortgage REIT, or mREIT) for a second, the stock shows up prominently on just about all lists of high-yield stocks. That's notable because the way an investor analyzes dividend stocks is vastly different from the way a growth stock would be analyzed, as just one example. So the first big question to answer with AGNC Investment is "How good a dividend stock is this REIT?"

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »

AGNC data by YCharts.

The answer for most investors will likely be "Not very good." As the chart above highlights, the dividend rose sharply at its initial public offering (IPO), which is normal for a dividend-paying company, and then started a long-term decline. From the peak to the current level, the dividend has fallen from $1.50 per share per quarter to just $0.36.

The share price followed a similar path, rising to a peak of over $36 as the dividend increased only to start a long decline to about $9 as the dividend was steadily reduced.

Most dividend investors are likely trying to find a stock that can provide them with reliable income to pay for living expenses in retirement. AGNC Investment has not provided that. In fact, if you used the dividends to pay for living expenses, you would have ended up with less income and less capital. That's a really bad outcome.

Image source: Getty Images.

AGNC is a total-return investment

What's interesting about AGNC is that it doesn't hide the fact that it isn't really a dividend stock. On its home page, it effectively touts total return as its big goal, but with a "substantial yield component." Total return assumes that dividends are reinvested.

The mREIT's first quarter highlights this dynamic in action. The company noted that it had a "2.4% economic return on tangible common equity for the quarter." That was "comprised of $0.36 dividends per common share and $(0.16) decrease in tangible net book value per common share."

Essentially, it paid out more in dividends than it lost in tangible net book value. Tangible net book value is different from share price; it is more like a net asset value for a mutual fund. But this dynamic is an important one for investors to understand.

Looking over the long term, the stock price at the IPO was $20. In other words, as of today the stock is worth $11 less than at the time of the share offering. But the REIT has paid out $49.24 per share in dividends. The net result is $38 or so more in dividends than was lost in the share price decline. That's why AGNC's total return is positive since its IPO, despite the falling dividend and share price.

AGNC data by YCharts.

This is a nuanced view of the stock. In fact, a dividend investor could argue that even spending the dividends has resulted in a net positive outcome based on the full picture.

It's just that most dividend investors don't think this way. And since there are plenty of dividend stocks that have attractive yields, growing dividends, and stock prices that have largely risen over time, there's no reason for them to start looking at a more complex situation like AGNC.

AGNC Investment is good at what it does

The company isn't a bad mortgage REIT. In fact, it does a pretty good job of providing its shareholders with total return via an investment in mortgage securities. And dividends play a very important role in that story, whether they are reinvested or not.

Still, this is probably not the type of investment that dividend investors will want in their portfolio. The lofty yield simply isn't as attractive as it seems, even though the dividend story here may not be as bad as it seems, either.

Should you invest $1,000 in AGNC Investment Corp. right now?

Before you buy stock in AGNC Investment Corp., consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and AGNC Investment Corp. wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $668,538!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $869,841!*

Now, it’s worth noting Stock Advisor’s total average return is 789% — a market-crushing outperformance compared to 172% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of June 2, 2025

Reuben Gregg Brewer 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.