It’s hard to believe it’s been almost a year since we last checked out AGNC Investment Corp. (Nasdaq: AGNC) in Safety Net. I’m genuinely surprised by this, especially since it was once one of the hottest topics for this feature.
Perhaps the stock’s stagnant performance over the last year has dulled some of the excitement among investors. Nonetheless, that tempting 15% yield still draws in those looking for income, so it’s definitely worth revisiting.
Back in January, I handed the stock an “F” rating concerning dividend safety. Why? Quite simply, AGNC has a history of slashing its dividend multiple times over the past decade.
On the bright side, the company was, on paper at least, expected to generate enough net interest income (NII) to cover the dividend. For a mortgage REIT like AGNC, we use NII as a key indicator of cash flow health. This boils down to the difference between the interest income collected and the interest paid out.
Sadly, things didn’t turn out as hoped. Instead of a positive turn, AGNC’s NII actually went negative. I’m not talking about declining growth—I’m saying the NII itself was negative, which means they were in the red.
In 2023, AGNC’s NII was a grim -$246 million, yet it handed out a whopping $1 billion in dividends to investors.
What’s the outlook this year? Wall Street predicts NII should “improve” to -$42 million while still expecting the company to distribute another $1 billion in dividends.
Now, despite our chart candidly showing AGNC making no money, a glance at their third-quarter earnings release might surprise you—it presents them as profitable. Up to this point in the year, AGNC has raked in $741 million in earnings.
What causes the gap between earnings and NII? The main reason is the inclusion of $1 billion in unrealized gains from securities in the earnings calculation.
However, you can’t pay dividends from unrealized gains. It’s a bit like trying to settle your utility bill with stock you haven’t actually cashed in on.
This is exactly why I tend to scrutinize cash flow—or NII in the case of mortgage REITs—when assessing dividend safety. It cuts through the accounting clutter and reveals the real financial health from day-to-day operations.
While AGNC might appear profitable thanks to some completely legal accounting tricks, the negative NII highlights that they’re spending more than they earn.
Sure, AGNC might eventually sell those securities, realize a $1 billion gain, and use that cash for dividends. However, for dividend safety evaluations, the focus should be on consistent income generated by regular business activities—not one-off or lucky breaks.
Though AGNC has some valuable assets, its current business operations aren’t pulling in enough cash to comfortably cover the $0.12 per share quarterly dividend or sustain that enticing 15% yield.
Combine that with its shaky past of cutting dividends, and it’s tough to see the dividend as anything but extremely risky and likely to be trimmed.
Dividend Safety Rating: F
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