Investors looking for higher levels of income from their portfolios, often purchase monthly dividend stocks. There are good reasons for this, as monthly dividend stocks pay dividends each month, notes Bob Ciura, contributing editor of Sure Dividend.
In addition, many monthly dividend stocks have extremely high dividend yields. For example, AGNC Investment Corp. (AGNC) has a 12% dividend yield.
Its high yield stands out, as the S&P 500 Index yields just 1.6% on average right now. However, investors should generally be wary of stocks with dividend yields above 10%, as the dividend payout could be unsustainable.
Business Overview & Recent Events
American Capital Agency Corp is a Real Estate Investment Trust, commonly referred to as REITs. But while most REITs own physical properties, AGNC is different in that it does not own any physical properties. Instead, AGNC is a mortgage REIT that invests primarily in agency mortgage-backed securities (or MBS) on a leveraged basis.
AGNC’s asset portfolio is comprised of residential mortgage pass-through securities, collateralized mortgage obligations (or CMO), and non-agency MBS. Many of these are guaranteed by government-sponsored enterprises. The majority of American Capital's investments are fixed-rate agency MBS. Most of these are MBS with a 30-year maturity period.
The counterparties to most of American Capital's assets are located in North America. Counterparties in Europe also represent a significant percentage of the trust's total portfolio. American Capital derives nearly all its revenue in the form of interest income. It currently generates $1.5 billion in annual net revenue.
The current environment is challenging for AGNC, given the fluctuations in interest rates over the past several months. In the 2022 first quarter, AGNC’s net spread and dollar roll income per share stood at $0.72 per share. This was down 4% year-over-year. Tangible net book value was $13.12 per share. Economic return on tangible common equity was -14.4%, compared with -1.8% in the previous quarter.
The company’s investment portfolio as of March 31, 2022, stood at $68.6 billion. Meanwhile, cash and unencumbered agency MBS amounted approximately $3.5 billion at quarter end.
Dividend Analysis
AGNC has a current dividend yield of 12%. However, the dividend may not be safe in all environments. The mortgage-backed security industry — given its leverage and interest rate sensitivity — is prone to underperform when the housing market experiences a downturn and mortgage foreclosures rise.
That said, AGNC had its initial public offering in 2008, and the company has a solid track record. AGNC has generated industry-leading total economic return based on net asset value.
AGNC’s industry-leading performance since its inception has been driven by its highly efficient operating cost structure. It also possesses a competitive advantage through economies of scale as it is one of only a few residential mortgage REITs with a market capitalization of above $5 billion.
The current dividend payout is $0.12 per share monthly, which equates to an annualized payout of $1.44 per share. The company is expected to generate earnings-per-share of $2.39 for 2022. This means AGNC has a projected dividend payout of 60% for 2022, which indicates that the dividend payout is secure. Of course, conditions can change rapidly in the MBS industry.
Investors will need to keep a close eye on the direction of interest rates, and AGNC’s quarterly results. But for now, AGNC appears to be an attractive choice for investors looking for high income and frequent payouts.
