Ok. Firstly.. Agnc will only yield 10 percent soon based on NAV. So 8 percent is good for the safety of no cuts. Second.. The agnc common would have a 0 dividend before you can suspend (delay) agnc preferred dividends. Any dividend on common even 5 cents would mean preferred gets paid.
The divs on the preferred are cumulative. I.e., the company can reduce the dividend, but has to make it up at some time in the future.
AGNC has to pay 90% of its profits, so it won't cut the preferred until the common div is wiped out, as you said. But if it also has to cut the preferred div, it means the company is no longer making even (1/.9) * 50 = 55.6 cents per preferred share per quarter, and there are a very small number of such shares. I.e., profits will be very skinny, and heading lower, probably negative.
Probably into a situation where winding-up the fund is the best course of action.
So, if the company is unable to pay the preferred div, it's a good chance they'll never have a profit to make it up with again. The "safety" is only of benefit in a regime where the company is super-close to losing money but not actually losing money. It's a razor-thin range of livelihood.
Meanwhile, 99.9% of the time, you're just giving up the higher yield and higher chance of equity appreciation on the common.
"99.9% of the time you are giving up higher yield and higher chance of equity appreciation on the common" No. By buying the preferred you are perhaps getting a better FY 2013 yield then if you bought the common today, and perhaps better price performance than the common in 2013 (Maybe the common drops, reduces the dividend, or possibily suffers NAV losses. I own the common but not the preferred. I would buy the preferred if it traded closer to par (thus more yield) than today. ARR-A is a better pfd stock than AGNCP right now. Another preferred to check out is GreenHunter Energy Inc TICKER: GRH-C yielding 13.6% pays monthly. Or... Miller Energy Resources Inc TICKER: MILL-C yielding over 12% and Apollo Investments TICKET: AINV gave them a 250m line of credit... so a portfolio company of a BDC.. MITT-B.. yielding 8% PFD is nice too. Trading at PAR right now.
Bottom line. AGNC is attractive as an investment.. but it's not my favorite. I also own MTGE which I find more attractive and JMI which is another hybrid mreit that pays monthly. Go to the MTGE message boards and you can see my "LIFESTYLE" portfolio. 98% of my portfolio securities yield more than 7%
That's not true. Equity holders can have the dividend cut to 0.20c or whatever pick a number but the preferred will always pay its dividend. It also will trade like a bond and won't drop in value much. If agnc Goes to 15$... Agncp will still be above $24 most likely.