If You Invested $10,000 In AGNC Five Years Ago, Here's How Much Your Shares Would Be Worth Today
Investors looking for income are often drawn to very high-yielding real estate investment trusts (REITs), but some of those issues can be what is popularly termed yield traps, meaning the yield is often unsustainable and the REIT may have to cut the dividend to pay debt or continue running profitably. When a stock dividend is cut, shares often decline by 10% or more. Investors in these REITs often suffer losses or see very little in gains over the years.
Some retired investors who need the income from high-yield dividends and have no intention of ever selling the stock may not care as much if share prices are slightly volatile. But if the dividend is cut repeatedly from the buy-in point, the yield received could be far less than originally expected and the share prices will decline by quite a large margin.
Don't Miss:
Investing in real estate just got a whole lot simpler. This Jeff Bezos-backed startup will allow you to become a landlord in just 10 minutes, and you only need $100.
Passive income investments are one of the most trusted methods for riding out a recession, so it's no surprise that people are turning to these high-yield commercial real estate notes that pay a fixed 10% – 12%.
Take a look at one REIT that receives a great deal of attention for its high-yielding dividend, but in reality, has performed poorly over the past five years.
AGNC Investment Corp (NASDAQ:AGNC) is a Bethesda, Maryland-based, internally managed mortgage REIT (mREIT), that invests in U.S. government-guaranteed pass-through securities and collateralized mortgage obligations.
AGNC Investment Corp. has a market cap of $6.6 billion, total assets of $71.6 billion and has been in business for 15 years. It invests predominantly in agency residential mortgage-backed securities.
If you invested $10,000 in AGNC stock five years ago, you would have received 552.18 shares at a starting price of $18.11. AGNC pays a monthly dividend and in January 2019 the dividend was $0.18 per share.
However, over the last five years, the dividend has been cut twice — from $0.18 to $0.16 in May 2019 and then to $0.12 in April 2020. Despite a payout ratio of less than 55%, the dividend has remained constant since then. The main reason is that the share price has declined over time to its most recent close at $9.81, so the yield has remained so high that dividend boosts are not needed.
But an investor who purchased shares five years ago has had a total return (including dividends) of negative 2.32% over that five-year time frame. By contrast, the S&P 500 has returned approximately 96% since then.
The total $10,000 investment would now be worth only $9,767. Those who reinvested the dividends now have 997.19 shares but still have a similar total return of 02.18%. The value of this investment would presently be $9,782.
Recent News
After the bell on Jan. 22, AGNC reported its fourth-quarter operating results. Earnings per share (EPS) of $0.57 just missed the analyst consensus estimate of $0.58 but was a 22.97% decline from EPS of $0.74 in the fourth quarter of 2022. Revenue was negative $26 million, the fourth consecutive quarter of negative revenue. The only silver lining is that the negative revenue amount has declined in each quarter from negative $98 million to the present negative $26 million.
One positive was the book value, which increased from $8.08 in the third quarter to $8.70 in the fourth quarter.
President and CEO Peter Federico noted that the higher interest rate environment of the past two years and agency mortgage-backed security (MBS) spreads of more than 100 basis points are now behind them, and he expects declining interest rates and more stable MBS spreads going forward.
Analysts have been somewhat tepid on AGNC. On Jan. 22, Barclays analyst Mark Devries maintained AGNC with an Equal-Weight rating and raised the price target from $8 to $9.
On Jan. 25, RBC Capital Markets maintained an Outperform rating on AGNC but lowered the price target from $11 to $10. RBC had previously raised the price target from $9 to $11 on January 5
Despite the poor performance over the past five years, AGNC states on its website that its REIT was "built with the objective of generating favorable long-term stockholder returns with a substantial yield component."
To be fair, AGNC's 10-year total return is 44.82% for those collecting dividends and 57.87% for those reinvesting dividends, but these are only average returns for that time frame. The total return from its initial public offering (IPO) on May 15, 2008, is slightly better at 197.98% or 7.2% average annual total return for those collecting dividends and 377.85% or 10.47% average annual total return for those reinvesting dividends.
Should interest rates decline in 2024, AGNC could begin to improve its performance, but if one looks at the last five or 10 years, the track record has been mediocre to poor and a long-term yield trap for investors.
Read Next:
Elon Musk has reportedly bought 6,000 acres of land just outside of Austin. Here’s how to invest in the city’s growth before he floods it with new tech workers.
Warren Buffett once said, "If you don't find a way to make money while you sleep, you will work until you die." Here are 3 high-yield investments to add significant income to your portfolio.
Collecting passive income from real estate just got a whole lot simpler. A new real estate fund backed by Jeff Bezos gives you instant access to a diversified portfolio of rental properties, and you only need $100 to get started.
Send To MSN: 0
"ACTIVE INVESTORS' SECRET WEAPON" Supercharge Your Stock Market Game with the #1 "news & everything else" trading tool: Benzinga Pro - Click here to start Your 14-Day Trial Now!
Get the latest stock analysis from Benzinga?
This article If You Invested $10,000 In AGNC Five Years Ago, Here's How Much Your Shares Would Be Worth Today originally appeared on Benzinga.com
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
