AGNC Investment Corp. (NASDAQ: AGNC), one of the largest mortgage real estate investment trusts (mREITs) in America, pays a massive forward dividend yield of 13.1%. Is that high yield a bright red flag, or is AGNC actually a safe income play for long-term investors?
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue »
Unlike equity REITs, which buy properties and lease them out to generate income, mREITs buy mortgages and mortgage-backed securities (MBS) to collect interest. To insulate itself from another credit crunch or housing market crash, AGNC allocates 89% of its $94.7 billion portfolio to Agency MBS ****** ets backed by Fannie Mae, Freddie Mac, or Ginnie Mae. REITs and mREITs also must pay out at least 90% of their taxable income as dividends to maintain a lower tax rate.
To generate stable profits, mREITs must earn sufficient interest on their long-term MBS to cover the debt financing of their short-term MBS purchases. This strategy works as long as the housing market remains stable and the Fed's short-term rates remain lower than its long-term rates.
To see how sustainable AGNC's dividend is, we should check its net interest spread, or the gap between the average yield it earns on its MBS and the average costs of funding its ongoing purchases, and the ability of its net spread and dollar roll income (the profit it books from its ongoing sales and purchases of MBS) per share to cover its dividends.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue »
Unlike equity REITs, which buy properties and lease them out to generate income, mREITs buy mortgages and mortgage-backed securities (MBS) to collect interest. To insulate itself from another credit crunch or housing market crash, AGNC allocates 89% of its $94.7 billion portfolio to Agency MBS ****** ets backed by Fannie Mae, Freddie Mac, or Ginnie Mae. REITs and mREITs also must pay out at least 90% of their taxable income as dividends to maintain a lower tax rate.
To generate stable profits, mREITs must earn sufficient interest on their long-term MBS to cover the debt financing of their short-term MBS purchases. This strategy works as long as the housing market remains stable and the Fed's short-term rates remain lower than its long-term rates.
To see how sustainable AGNC's dividend is, we should check its net interest spread, or the gap between the average yield it earns on its MBS and the average costs of funding its ongoing purchases, and the ability of its net spread and dollar roll income (the profit it books from its ongoing sales and purchases of MBS) per share to cover its dividends.
2 months ago
