Key Points
AGNC Investment pays a very high-yielding monthly dividend.
You can generate a lot of dividend income each month from a lower investment rate.
AGNC Investment (NASDAQ: AGNC) currently yields 16.3%. That's more than 10 times higher than the S&P 500, which currently yields 1.1%. That supercharged yield enables you to generate much more dividend income at a lower investment rate.
Here's a look at how many shares of the mortgage REIT you'd need to own to produce $500 of dividend income each month.
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It's all about risk and reward
AGNC Investment currently pays a monthly dividend of $0.12 per share. At that rate, you'd need to hold almost 4,167 shares to generate $500 a month in dividend income, which would cost about $36,667 at its recent share price.
For perspective, you'd need to invest roughly $571,429 into an S&P 500 index fund to produce the same amount of income. That's a staggering 94% less capital for the same income.
However, there's a catch. AGNC's much higher-yielding dividend comes with an equally elevated risk profile. The REIT invests solely in Agency MBS (pools of residential mortgages guaranteed against credit losses by government agencies like Fannie Mae) on a leveraged basis. That leverage boosts returns and its risk profile.
As long as its returns remain above its costs, the REIT can maintain its dividend. That's currently the case. CEO Peter Federico noted on AGNC's third-quarter conference call that its investment returns in current market conditions are above its costs, making its dividend "well-aligned with the economics of our business."
The issue is that it has experienced misalignment before. When that happens, the REIT has had to reduce its dividend. It last cut its payout in 2020 from $0.16 per share to its current rate.
There's no doubt that you can currently generate a lot of dividend income each month from an investment in AGNC. However, you need to realize that it's not a bankable income stream. As a result, you shouldn't invest the nearly $37,000 it would take to produce $500 a month of dividend income from the REIT unless that were a very small percentage of your overall portfolio.
Matt DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.