1 Key factors investors should know about AGNC Investment’s 15% dividend yield

AGNC investment (AGNC 2.00%) One of the most attractive dividend stocks. The mortgage-focused real estate investment trust (REIT) pays monthly dividends that give investors an eye-watering 15% yield. it is, S&P500 The index’s dividend yield is 1.5%.

Given its huge size, the company regularly receives questions about the long-term sustainability of its payments.That was the case recently Q4 conference call. Let’s look at one important element here. Mortgage REIT The CEO emphasized on the conference call that it will promote its ability to pay out huge dividends.

Important factors supporting dividends

Analysts on AGNC Investment’s fourth quarter conference call asked questions that most income investors want answers to. UBS Analyst Doug Harter said: “Given the volatility we’ve been through, can you talk about your outlook for the dividend and what you think about the dividend level for 2024 overall? ?” he asked.

CEO Peter Federico responded:

Many things go into determining dividends. This has always been the case with respect to the operating environment, our expectations regarding leverage on a future basis, and importantly, things like interest rate volatility and rebalancing costs. But again, like me, mentioned last timeAnother important input into that equation is what our break-even ROE will be (Return on equity) for our business. Considering both common stock and dividends, preferableWhat is that number based on operating costs and percentage of total capital? For example, at the end of the fourth quarter, this number equates to an annualized breakeven ROE of approximately 15.5%.

As Mr. Federico pointed out, AGNC Investment’s dividend is dependent on its ability to earn a return on equity above its breakeven level, which was 15.5% at the end of the fourth quarter. If the company cannot earn ROE above this level, it will not be able to maintain dividends for a long time. However, as long as ROE is consistently at or above that level (and other factors are favorable), it can continue to pay dividends at current levels.

Is AGNC Investment meeting its dividend target?

Mr. Federico then addressed whether the company is currently meeting its profit targets and its outlook in the current environment. Looking at the economics of the company’s current portfolio, he noted, “Given the way we manage our portfolio, I think you can conclude that mortgages are generating ROE in the mid-teens.” did. The “key takeaway” from all this is that the company’s ROE and current dividend levels “remain at a relatively good level,” according to the CEO. In other words, AGNC Investment can maintain a high dividend.

However, as Mr. Federico pointed out last quarter and last quarter, ROE is not the only factor that determines a company’s ability to maintain its dividend. The current market environment also plays a role. In recent years, the environment has faced problems, The major headwinds should start to weaken this year.. Federico said there are several positive factors going forward, including “lower interest rate volatility, which is beneficial” to maintaining the dividend.

All of this is a good sign that AGNC Investment is likely to be able to maintain its dividend this year. Currently, the company is making profits in the mid-teens and has almost reached its goal. On the other hand, the headwind of interest rate fluctuations is decreasing. As long as these factors continue and no other issues arise, AGNC Investment should be able to continue paying a generous dividend each month. However, if the situation worsens, the dividend may be further reduced.

Seems safe for now

AGNC Investment provides investors with a huge source of passive income. Although questions remain about its long-term sustainability, the company believes its current dividend level is well aligned with improving earnings and market conditions. Therefore, it should be able to continue paying its current dividend level for the time being.

However, investors focused on returns need to be aware of the risks that the factors supporting dividends may change. If that happens, the company may have to cut its dividend (as it has done in the past). That risk makes it less than ideal for those seeking a secure and sustainable source of income.