Warren Buffett Says ‘When It Rains Gold, Put Out The Bucket’ And This High Yield Investment Is Making It Rain
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In his 2016 letter to Berkshire Hathaway shareholders, legendary investor Warren Buffett wrote, “Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, it’s imperative that we rush outdoors carrying washtubs, not teaspoons.” According to Buffett’s sage advice, now might be the perfect time to invest in high-yield assets while interest rates remain elevated.
One popular high-yield stock that has caught the eye of income-hungry investors is AGNC Investment Corp (NASDAQ:AGNC). With a jaw-dropping dividend yield of 15.38%, it’s easy to see why. However, a closer look at AGNC’s performance reveals some notable risks.
The Risks of Chasing Yield: AGNC’s Shaky Track Record
While AGNC’s sky-high dividend yield is certainly enticing, the company’s recent performance paints a less rosy picture:
Year-to-date, AGNC shares are down 4.3%
Over the past year, the stock has fallen 5.18%
The 5-year performance is a dismal -48.55%
AGNC’s dividend rate has remained flat since early 2020
More on Buffett: Warren Buffett once said, “If you don’t find a way to make money while you sleep, you will work until you die.” These high-yield real estate notes that pay 7.5% – 9% make earning passive income easier than ever.
AGNC primarily invests in agency mortgage-backed securities (MBS), which are backed by government-sponsored entities like Fannie Mae and Freddie Mac. While these securities are considered nearly risk-free due to their government backing, financing them through short-term leverage has become increasingly challenging in the current interest rate environment.
As rates have risen, AGNC has seen its debt servicing costs skyrocket while its interest income has stalled. The company has relied heavily on derivatives like interest rate swaps and shorting U.S. Treasuries to hedge against higher rates and prop up earnings. But as these hedges begin to expire, AGNC’s ability to maintain its lofty dividend and shareholder value is being called into question.
A More Stable Alternative: Cityfunds Yield Fund
For investors seeking high yields backed by real estate assets without the excessive risks, the Cityfunds Yield fund offers a compelling alternative. While AGNC primarily invests in residential mortgages, Cityfunds focuses on home equity investments – a key distinction.
Here’s what makes the Cityfunds Yield fund stand out:
Targeting a stable 8% APY with quarterly distributions
Backed by a diversified pool of collateralized real estate loans
Invests in home equity agreement-backed notes and short-term mortgage notes
Offers a manager-guaranteed base yield of 7%
Five-year term fund with redemption available after a 12-month lock-up
By investing in a mix of home equity-backed notes and short-term mortgages, Cityfunds aims to generate steady interest income that can be distributed to investors on a quarterly basis. The fund’s 65% to 80% loan-to-value target on its home equity investments provides an added layer of security.
Unlike AGNC, which has seen its book value per share plummet from nearly $18 to under $9 in just over four years, Cityfunds’ focus on home equity and conservative LTV ratios helps protect investor capital. And with a guaranteed base yield of 7%, investors can count on a reliable income stream even in challenging market conditions.
While AGNC’s 15%+ dividend yield might look like a golden opportunity at first glance, savvy investors know that all that glitters isn’t gold. The company’s shaky performance, overreliance on complex hedging strategies, and exposure to a shrinking agency MBS market should give potential buyers pause.
For those heeding Buffett’s call to “put out the bucket” and capture high yields while the economic storm rages on, the Cityfunds Yield fund offers a more stable, risk-adjusted way to invest in real estate-backed cash flows. With quarterly distributions, a guaranteed base yield, and a conservative approach to home equity investing, Cityfunds is making it rain for income investors.
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.
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.
TORONTO – Canada’s main stock index was little changed in late-morning trading as the financial sector fell, but energy and base metal stocks moved higher.
The S&P/TSX composite index was up 0.05 of a point at 24,224.95.
In New York, the Dow Jones industrial average was down 94.31 points at 42,417.69. The S&P 500 index was down 10.91 points at 5,781.13, while the Nasdaq composite was down 29.59 points at 18,262.03.
The Canadian dollar traded for 72.71 cents US compared with 73.05 cents US on Wednesday.
The November crude oil contract was up US$1.69 at US$74.93 per barrel and the November natural gas contract was up a penny at US$2.67 per mmBTU.
The December gold contract was up US$14.70 at US$2,640.70 an ounce and the December copper contract was up two cents at US$4.42 a pound.
This report by The Canadian Press was first published Oct. 10, 2024.
