AGNC (NASDAQ: AGNC), one of many largest mortgage actual property funding trusts (mREITs) within the U.S., pays a ahead dividend yield of 14.1%. That huge dividend usually attracts a number of consideration from income-driven buyers, however is it a secure long-term funding? Let’s assessment its internet curiosity unfold and why that metric issues rather more than its dividend yield.
How does AGNC earn money?
As an mREIT, AGNC solely buys mortgages and mortgage-backed securities (MBS). To mitigate its danger, AGNC allocates 89% of its $94.7 billion portfolio to Company MBS property, that are backed by Fannie Mae, Freddie Mac, or Ginnie Mae. That authorities help ought to defend it from one other housing market meltdown.
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AGNC collects curiosity on these investments and distributes no less than 90% of its taxable earnings as dividends to keep up a decrease tax price. To generate additional cash for future MBS purchases, it sells its personal MBS to counterparties and agrees to repurchase them at a set value plus curiosity on a future date. These counterparties maintain the MBS as collateral, however the accrued curiosity continues to be paid again to AGNC. The corporate refers to those gross sales as “repo transactions”.
For this technique to work, AGNC should earn sufficient curiosity from its long-term MBS to cowl its purchases of short-term MBS. In different phrases, the Fed’s short-term charges should stay decrease than its long-term charges. If the yield curve inverts (short-term yields exceed long-term yields) when the financial system is distressed, its internet curiosity unfold — or the hole between the common yield AGNC earns on its MBS and the common prices of funding these purchases — will decline.
What occurred to AGNC over the previous few years?
AGNC posted a internet curiosity unfold of 1.92% in 2025, in comparison with 2.42% in 2024 and three.06% in 2023. Its unfold declined as its funding prices outpaced its asset yields, primarily as a result of it was nonetheless locked into the older charges of its legacy repo transactions.
However as these lower-rate hedges “roll off”, it could change them with extra worthwhile ones. That is why its internet curiosity spreads stabilized over the previous yr.
|
Metric |
Q1 2025 |
Q2 2025 |
Q3 2025 |
This fall 2025 |
Q1 2026 |
|---|---|---|---|---|---|
|
Web Curiosity Unfold |
2.12% |
2.01% |
1.78% |
1.81% |
2.06% |
Information supply: AGNC.
For 2026, analysts anticipate these stabilizing yields to spice up its EPS 5% to $1.57, which can simply cowl its ahead yield of $1.44 per share. So though AGNC may initially look like a high-yield lure, its dividends are literally sustainable, and its core enterprise is enhancing. Due to this fact, it is nonetheless a dependable funding for income-oriented buyers.
