Purchase 91 shares AGNC investment Corp

This week I bought 91 shares AGNC Investment Corp at a price of $17,60. AGNC is a mortgage REIT. AGNC is an internally-managed mortgage REIT which is predominantly investing in agency mortgage-backed securities.

AGNC Investment Corp is currently paying a monthly dividend of $0,18. On a yearly basis the yield is 12,3%. As a result of the 91 shares I purchased, my yearly estimated dividend income increased by $196,56.

Mortage REIT’s are a very specific investment category. Mortage REIT’s provide financing for real estate by purchasing or originating mortgages and mortgage-backed securities. mReit’s are basically earning their income by the difference between the interest they receive on the mortages or mortage-backed securities they own and the interest they pay on their loans.

Mortgage REITs often attract short term loans against a low interest rate to originate long term mortgages or buy long term mortgage-back securities. As a result mREIT’s are extremely sensitive to interest rate increases, because this will reduce the spread between the interest they receive and pay.

I own shares in REIT’s in various categories. Already for a long term I have AGNC investment corp on my watchlist to also have exposure to the mortgage REIT category.

I have to say that I consider it difficult to understand a company like AGNC. Normally when I read the annual report or other presentations of the company it’s rather easy to get an idea about what a company is doing from the brands they own, the products they produce or the list of properties they own.

In the annual report of AGNC is a list with the duration and interest rates of their assets, but I consider it difficult to see in this what the MOAT is of a mortgage REIT. AGNC is mainly investing in securities backed by single-family residential mortgages and collateralized mortgage obligations guaranteed by government agencies Fannie Mae, Freddie Mac, and Ginnie Mae. For this reason and their monthly payments I decided to add AGNC Investment Corp as mREIT to my portfolio.

I will enjoy their monthly payments, but I don’t expect any capital appreciation from this investment. Also I realize that rising interest rates will mean a dividend cut. To keep a balanced portfolio I will probably add another mREIT, but I doubt these will ever be among my biggest positions as mREIT’s are able to often bring high yields, but also volatile yields.

3 thoughts on “Purchase 91 shares AGNC investment Corp”

  1. Just out of curiosity, do you have a plan to get out of the investment prior to the dividend cut? I understand the dividend yield is juicy; however, if you are concerned about a future cut once interest rates start to rise, do you plan on selling at some point in the near future prior to interest rates increasing? Personally, I’m staying away from Mortgage rates due to the future rising interest rate environment and their sensitivity to interest rate bumps.

    Good luck with the investment!

    Bert

    1. I bought AGNC as long term investment. Before this purchase I didn’t have any exposure to mREIT’s and for diversification reasons and because of the cashflow mREIT’s can generate I want to have a small exposure to these kind of REIT’s. Last few years I considered the price too high for mREIT’s, but now the market conditions are less favorable I decided to make a small purchase and probably I will also buy shares of Annaly Capital Management somewhere this year.

      Average duration of the mortgage-backed securities AGCN is owning is 4.5 years so in a rising interest climate it’s possible for AGNC to redirect almost 23% of their portfolio to MBS with a higher yield from the repayed securities, but funded by short term debts with also a higher interest and making money on these loans. A rising interest rate should give higher spreads and higher income, but short term it’s possible that a bookvalue loss will be made on the current MBS’s owned by AGNC. Only if the short term interest is for a long time higher than the interest paid on the MBS’s owned by AGCN the bottom line is really declining fast, because repayed MBS’s can’t be replaced by new profitable MBS’s with a higher spread than the repayed securities.

      I decided to make my purchase now in a less favorable market where a lot of bad news is priced into the shareprice.

      I absolutely would never assign a big part of my portfolio to mREIT’s, but I’m not feeling uncomfortable with a small exposure to mREIT’s. By purchasing AGNC I now have 1.5% of my portfolio invested in mortgage REIT’s.

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