Investment

AGNC Investment: Buy, Sell, or Hold? – The Motley Fool

Published

6 months ago

April 28, 2024

AGNC Investment just reported solid first-quarter 2023 earnings, but don’t rush in to buy this high-yield stock. It’s a complicated investment.

AGNC Investment (AGNC 0.97%) is a real estate investment trust (REIT). It offers a huge 15.3% dividend yield. And first-quarter 2023 financial results were solid, with book value up 1.6% so far in 2024 and earnings handily covering the dividend payment. It would be understandable if income investors were attracted to AGNC Investment. But before you make a buy, sell, or hold call here, you need to understand a little about the company’s backstory.

What does AGNC Investment do?

AGNC is an REIT, but it isn’t a landlord like most other REITs. It buys mortgages that have been pooled into bond-like securities. This is a very different business model than owning a physical property and renting it out to tenants, which is a fairly simple thing to understand. Owning a portfolio of mortgage securities, as AGNC does, is more like running a mutual fund.

The big problem is that the mortgage securities AGNC Investment owns trade all day. So they are more volatile than property prices, which tend to rise and fall more slowly over time. Moreover, bond prices are highly sensitive to interest rate changes, falling when interest rates rise and rising when interest rates fall. Then you have to consider the impact interest rates can have on the housing market, which is the source of the mortgages that AGNC eventually buys. Higher rates make it more expensive to take out a mortgage, and can lead to fewer home sales. Rising and falling rates can also impact the way customers pay their mortgages. If rates get high enough, there’s also a very real risk that some mortgage holders will start to experience financial troubles, which could result in an uptick in defaults.

Simply put, there are a lot of moving parts here and AGNC Investment isn’t appropriate for investors that aren’t willing to put in the time and effort to fully understand the company’s mortgage focus.

Sell AGNC Investment

That’s the big reason to sell AGNC Investment, or to never even buy it. But below is the graphic that really shows why the stock’s high yield, despite recent strong performance, isn’t going to be attractive for more conservative dividend investors.

AGNC data by YCharts

The blue line is the dividend, which you can see rises swiftly at the start of the graph and then starts a steady decline. If you are trying to live off of the dividends your portfolio generates, that level of variability probably won’t work for you. But then look at the purple line, which is the stock price. It has been following the dividend lower, which means dividend investors that spend their dividend checks have been left with less income and less capital.

Forget the yield, which has remained high throughout (which is just the basic math of dividend yields) — AGNC has been a terrible story for most dividend investors. Could the direction of the dividend payment change? Sure, but the variability of the dividend isn’t likely to go away.

Buy or hold AGNC Investment

So why would any investor want AGNC Investment in their portfolio? The answer is that it is really designed to be a total return vehicle, which assumes the reinvestment of dividends. As the chart below shows, while the stock-price-only return is deep in negative territory, the total return is actually positive.

AGNC data by YCharts

That makes this a good way for investors to add mortgage exposure to a portfolio that’s built around an asset allocation model. That is not what most dividend investors are doing. However, it is what a lot of large institutional investors do, like pension funds and insurance companies. And for the most part, AGNC Investment is a perfectly fine way to add mortgage exposure to an otherwise diversified portfolio, if that’s what you are trying to do.

Probably not for you

When you step back and look at the big picture here, AGNC Investment, despite a consistently huge dividend yield, has proven to be a terrible investment for most dividend investors. But investors trying to live off of the income they generate from their portfolios really aren’t the company’s target market. In other words, most small investors would do well to simply avoid AGNC, even though it could be a good fit for institutional investors that take a total-return approach.

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Investment

Tesla shares soar more than 14% as Trump win is seen boosting Elon Musk’s electric vehicle company

Published

3 days ago

November 6, 2024

Anne Joseph

NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.

Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.

“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”

Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.

Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.

Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.

Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.

In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.

The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.

And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.

Tesla began selling the software, which is called “Full Self-Driving,” nine years ago. But there are doubts about its reliability.

The stock is now showing a 16.1% gain for the year after rising the past two days.

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Investment

S&P/TSX composite up more than 100 points, U.S. stock markets mixed

Published

3 weeks ago

October 16, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.

The S&P/TSX composite index was up 103.40 points at 24,542.48.

In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.

The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.

The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.

The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.

This report by The Canadian Press was first published Oct. 16, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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Economy

S&P/TSX up more than 200 points, U.S. markets also higher

Published

4 weeks ago

October 11, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.

The S&P/TSX composite index was up 205.86 points at 24,508.12.

In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.

The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.

The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.

The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.

This report by The Canadian Press was first published Oct. 11, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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