The mortgage REIT offers a prodigious dividend yield.
AGNC Investment (AGNC -1.82%) currently offers a monster dividend yield. The mortgage-focused real estate investment trust (REIT) has a payout approaching 14%. That’s more than 10 times higher than the S&P 500‘s dividend yield.
Here’s a look at how much you’d need to invest in the high-yielding mortgage REIT to collect $1,000 of dividend income each year.
AGNC Investment pays a monthly dividend of $0.12 per share ($1.44 annually). At that rate, you’d need to own about 695 shares to generate $1,000 of annual dividend income. With the REIT’s stock price around $10.50 apiece, you’d need to invest about $7,300 to reach that desired income level.
Given the REIT’s high yield, that’s a much lower investment threshold than you’d need with an alternative investment:
|
Investment |
Current yield |
Investment needed to generate $1,000 of annual dividend income |
|---|---|---|
|
REITs |
3.9% |
$25,380 |
|
S&P 500 |
1.2% |
$80,645 |
Data source: NAREIT.
However, there is a caveat when investing in AGNC Investment. It has a higher risk profile. The mortgage REIT invests in residential mortgage-backed securities (MBS) on a leveraged basis. Government agencies protect MBS investments from credit losses, making them very low-risk investments (with low returns). The REIT uses leverage (debt) to increase returns, which also raises its risk profile. Significant changes in the credit markets have forced the REIT to cut its dividend payment several times in the past.
On a positive note, the REIT’s current earnings were well above its dividend payment in the second quarter ($0.53 per share versus $0.36 in dividend payments). Further, the company’s CEO noted on its second-quarter conference call that the dividend payment aligned well with the portfolio’s expected return profile. However, if those two factors fall out of alignment in the future, the REIT might need to cut its payment again.
Given AGNC Investment’s higher risk profile, it might not be the best option for those seeking a very durable income stream. However, it does offer investors with a higher risk tolerance the ability to generate a lot of dividend income these days.
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.
