AGNC Investment: Buy, Sell, or Hold?

AGNC Investment (AGNC 0.15%) has a massive 14.4% dividend yield. To put that into context, the average real estate investment trust (REIT) yields just 3.9%, using Vanguard Real Estate Index ETF (VNQ 0.14%) as a proxy. It’s easy to see why a yield-hungry investor might want to learn more about AGNC. Fortunately, for most folks, the buy, sell, or hold call here will end up being pretty simple. But there’s still a small group of investors that don’t fit the common mold.

The problem with AGNC Investment

To get the big news out early, most investors won’t want to buy or hold AGNC Investment. And if you own it, you’d probably be better off selling it. There are two major issues. The first is that the company is a mortgage REIT, which is far more complicated than a traditional property-owning REIT.

You can pretty easily understand what a property-owning REIT does. It is exactly what you would do if you owned a rental property, but on a far larger scale. Investing in mortgage securities is an entirely different ball game, given that REITs like AGNC Investment generally own securities that have been created by pooling together individual mortgage loans. And such REITs often employ leverage, usually using their loan portfolio as collateral, to enhance returns. In some ways, a mortgage REIT is more like a mutual fund than a company. And they are certainly nothing like a landlord.

But you don’t actually need to understand the details of mortgage REITs to see why you wouldn’t want to own AGNC Investment. A simple graph will tell you all you need to know.

There’s a lot going on in the chart above, so here’s the breakdown. The blue line is the dividend, which indicates that the REIT has cut its payment multiple times over the past decade. The purple line is the stock price, which shows that the price has fallen along with the dividend. And the orange line is the dividend yield, which shows that, despite the terrible dividend track record and price performance, the yield has remained lofty over the entire decade.

If you bought AGNC Investment in the hope of living off of the income you collected from its dividend, you would have ended up with less income and capital losses. That would be the worst possible outcome for most dividend investors.