AGNC Investment: Buy, Sell, or Hold?
AGNC Investment (NASDAQ: AGNC) is a real estate investment trust (REIT). It offers a huge 15.3% dividend yield. And first-quarter 2023 financial results were solid, with book value up 1.6% so far in 2024 and earnings handily covering the dividend payment. It would be understandable if income investors were attracted to AGNC Investment. But before you make a buy, sell, or hold call here, you need to understand a little about the company's backstory.
AGNC is an REIT, but it isn't a landlord like most other REITs. It buys mortgages that have been pooled into bond-like securities. This is a very different business model than owning a physical property and renting it out to tenants, which is a fairly simple thing to understand. Owning a portfolio of mortgage securities, as AGNC does, is more like running a mutual fund.
The big problem is that the mortgage securities AGNC Investment owns trade all day. So they are more volatile than property prices, which tend to rise and fall more slowly over time. Moreover, bond prices are highly sensitive to interest rate changes, falling when interest rates rise and rising when interest rates fall. Then you have to consider the impact interest rates can have on the housing market, which is the source of the mortgages that AGNC eventually buys. Higher rates make it more expensive to take out a mortgage, and can lead to fewer home sales. Rising and falling rates can also impact the way customers pay their mortgages. If rates get high enough, there's also a very real risk that some mortgage holders will start to experience financial troubles, which could result in an uptick in defaults.
Source Fool.com
