How Safe Is AGNC's 13% Dividend Right Now?
Yahoo Finance ·
AGNC Investment Corp. ( AGNC +1.72% ) , one of the largest mortgage real estate investment trusts ( mREITs ) in America, pays a massive forward dividend yield of 13.1%. Is that high yield a bright red flag, or is AGNC actually a safe income play for long-term investors? Unlike equity REITs , which buy properties and lease them out to generate income, mREITs buy mortgages and mortgage-backed securities (MBS) to collect interest. To insulate itself from another credit crunch or housing market crash, AGNC allocates 89% of its $94.7 billion portfolio to Agency MBS assets backed by Fannie Mae , Freddie Mac , or Ginnie Mae . REITs and mREITs also must pay out at least 90% of their taxable income as dividends to maintain a lower tax rate. To generate stable profits, mREITs must earn sufficient interest on their long-term MBS to cover the debt financing of their short-term MBS purchases. This strategy works as long as the housing market remains stable and the Fed's short-term rates remain lower than its long-term rates.
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