It is the only way AGNC is able to continue to pay its dividend. If they did not go to market early and often with share offerings, their ability to pay the dividend would erode.
Please note that it is only to maintain the dividend, and that is now in question. All the share offerings done in the last two years have NOT resulted in a single dividend increase for shareholders. The only beneficiary has been management.
I am a holder of AGNC and I hold it for the dividend. I do not believe that it holds much potential for capital gains. Holders of AGNC know that, or should.
The dividend does not depend on the SPO. The dividend comes from interest paid on assets (mostly securities based on mortgages) less hedging costs. The dividend is 90+ % of income. The rest gets reinvested or used for further hedging and expenses.
The SPO only grows assets, which is a necessity only from the standpoint of the management company, which earns a set percentage of shareholder equity (book value). The bigger the net assets, the bigger their paycheck.
But they could move on to managing other things actively, and just let this one mellow. With decent spreads it can still pay the same dividend. And with no SPOs to hit the stock price, the price would run up, because the yield is very attractive, and would remain attractive until it was merely average, which would be when the stock price is well north of 50, probably more like 80.
Go to the bottom where it says “Total Equity”. Reading from right to left over the last 5 quarters, it says $1,572 - $3,345 - $4,777 - $4,940 - $6,212. ( Numbers in millions ). So assets minus liabilities have been going up. This is essentially the net worth or book value of the company.
Now go down to where it says “Total Common Shares Outstanding”. From right to left, it reads, 65 – 129 – 179 – 184 – 224. So the number of shares have been going up as well.
Now divide the total equity by the shares outstanding. We get 24.18 – 25.93 – 26.69 – 26.85 – 27.73 . So the book value per share is rising ever so slowly rather than dropping. This is significant in that it means the management is able to make the net worth of the company keep pace with the rising number of shares. The dividend seems safe for now, but I’m not sure how long they can keep this up.
While you may be technically correct that AGNC is not dependent on SPOs to maintain the dividend, ask this question: Since the dividend has been stable to lower over the last year and AGNC has done repeated SPOs during that time, is it not likely that the dividend would be lower with those SPOs? I believe it would be.
That is in part a reflection of the current interest rate market. Spreads are very compressed, making it more difficult to show a profit. Having a larger investment base makes it possible to offset that compression somewhat, but it has not been enough to avoid cutting the dividend.
The real question we all want answered is this: When spreads return to a more normal environment, will AGNC use that as a vehicle for growing the dividend? That is an implicit factor in evaluating AGNC's share price and consequent yield.