AGNC Investment Corp announced this week a decrease of their monthly dividend from 18 cents to 16 cents. As a result of this dividend decrease my yearly estimated dividend income from AGNC will drop $16,51 per year.
After the dividend reduction was announced the stock price declined a few percent and I decided to make a small purchase of 14 more shares to keep my dividend income from AGNC on the same level as before.
Stock price is now very close to NAV, but there is still possible price pressure due to the current market development of interest rates. The lack of spread between long and short interest rates makes it that the stock price of mREIT’s is under pressure.
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.