Investment

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

Published

5 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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Economy

S&P/TSX composite down more than 200 points, U.S. stock markets also fall

Published

7 days ago

September 6, 2024

Anne Joseph

TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.

The S&P/TSX composite index was down 239.24 points at 22,749.04.

In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.

The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.

The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.

The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.

This report by The Canadian Press was first published Sept. 6, 2024.

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

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Economy

S&P/TSX composite up more than 150 points, U.S. stock markets also higher

Published

2 weeks ago

August 29, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.

The S&P/TSX composite index was up 171.41 points at 23,298.39.

In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.

The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.

The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.

The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.

This report by The Canadian Press was first published Aug. 29, 2024.

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

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Investment

Crypto Market Bloodbath Amid Broader Economic Concerns

Published

1 month ago

August 5, 2024

Harry Miller

The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.

The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.

Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.

The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.

Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.

Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.

Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.

Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.

The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.