AGNC Investment Posts Q4 Results: How Should You Approach the Stock?

AGNC Investment Corp. AGNC reported fourth-quarter 2024 results on Jan. 27. The company’s quarterly top and bottom-line numbers missed the Zacks Consensus Estimate.In 2024, the AGNC stock gained 8.9% against the industry's decline of 4.5%. The stock underperformed the S&P 500 index’s rise of 26.2% over the same time frame. Meanwhile, AGNC's peers Annaly Capital Management NLY and Ellington Credit Company EARN grew 7.9% and 24.6%, respectively.Price Performance Image Source: Zacks Investment Research AGNC is a publicly traded mortgage real estate investment trust (mREIT) company which offers favorable long-term stockholder returns with a substantial dividend yield component, which may tempt many investors to buy the stock. However, the stock experienced some headwinds in the fourth quarter of 2024, which might raise concerns about its dividend sustainability.Before we check the investment worthiness of the AGNC Investment stock, let us take a look at the company’s fourth-quarter performance in brief.Sneak Peak Into AGNC’s Q4 ResultsAGNC Investment's performance was mixed in the fourth quarter of 2024. The company reported a comprehensive net loss of 11 cents per share against a comprehensive income of 1 cent per share in the year-ago quarter.As of Dec. 31, 2024, AGNC’s average tangible net book value "at risk" leverage ratio was 7.2X, down from 7.4X from the prior-year quarter. This decrease and dividend payments of 36 cents per share for the quarter resulted in a negative 0.6% economic return on tangible common equity for the period.The negative return and falling profitability may raise worries about AGNC Investment's capacity to sustain its high-yielding payment. Nonetheless, the company's average asset yield on its portfolio was 5.02% in the fourth quarter of 2024, up from 4.55% in the fourth quarter of 2023. The company also concluded the quarter with strong liquidity of $6.1 billion, reflecting its capacity to maintain its dividend in the upcoming period.AGNC Investment & Dividend PayoutOne of the most closely watched aspects of AGNC's financial profile is its dividend policy. AGNC has a record of paying monthly dividends.The company’s current dividend yield is 14.59%. This is impressive compared with the industry’s average of 11.39% and attracts investors as it represents a steady income stream.AGNC Investment Corp. Dividend Yield (TTM)  AGNC Investment Corp. dividend-yield-ttm | AGNC Investment Corp. QuoteAGNC Investment's peers NLY and EARN are also providing investors with solid dividend options. NLY has an annual dividend yield of 13.1%, whereas EARN has a dividend yield of 14.5%.Dividends aside, AGNC has a share repurchase plan in place. In October 2024, the company’s board of directors terminated the existing stock repurchase plan and replaced it with a new plan authorizing it to repurchase up to $1 billion of common stock through Dec. 31, 2026. The company plans to buy back shares only when the repurchase price is lower than the-then-current estimate of tangible net book value per common share.AGNC & Favorable Agency MBS OutlookAGNC Investment has maintained its focus on agency mortgage-backed securities (RMBS), a strategy that has positioned it as a strong player in this specialized market segment. AGNC primarily focuses on leveraged investments in Agency RMBS, including residential mortgage pass-through securities and collateralized mortgage obligations. A U.S. Government agency or a U.S. Government-sponsored enterprise guarantees the principal and interest payments for such investments.The fundamental outlook for fixed income, particularly agency MBS assets, has shown signs of improvement lately. AGNC Investment’s management believes that the agency MBS market could benefit from a combination of factors, including a steepening yield curve and reduced rate volatility.Against this improved investment backdrop, AGNC generated a positive economic return of 13.2% in 2024, driven by the company’s compelling monthly dividend. Its 2024 performance shows that it can generate robust investment returns when Agency MBS spreads are wide and steady.Although the market is extremely competitive, the company's focus on agency MBS puts it in a position to possibly profit from positive trends. However, execution will be crucial to achieving these advantages.AGNC Investment & Interest Rates   AGNC's performance and prospects are significantly influenced by the interest rate environment. Decisions related to the Federal Reserve’s monetary policy have a big impact on the company's performance, and analyst projections are heavily influenced by market expectations for possible rate cuts.AGNC Investment’s financials have been adversely impacted since early 2022, when the Fed began its interest rate hiking cycle. The negative return and falling profitability raised concerns about the company’s capacity to sustain its high-yielding payment.Higher rates led to a surge in AGNC's borrowing costs, which resulted in a net interest income of just $18 million in 2024, significantly lower than $965 million in 2022. Due to spread risks, high rates also affected the book value of the company's investments. As such, the company’s book value per share declined 17% from Dec. 31, 2022, to $8.41 as of Dec. 31, 2024.The Fed has lowered the interest rates by 100 basis points in 2024. However, the central bank hinted at fewer rate cuts in 2025 as it believes that the economy is still holding strong amid ‘sticky’ inflation and a solid job market. Given this, mortgage rates are witnessing a volatile trend. Per a Freddie Mac report, the average rate on a 30-year fixed-rate mortgage was 6.96% as of Jan. 23, 2025, down from 7.04% in the previous week and up from 6.69% during the same week a year ago.If interest rates stay higher for an extended period, AGNC may encounter several difficulties. High rates usually result in less demand for mortgage refinances, which may limit the amount of new agency MBS available for the company to purchase. This can restrict the company's ability to grow and possibly cause its portfolio to stagnate. Higher rates for an extended period may reduce the value of its current MBS holdings, which could result in a significant drop in book value.AGNC Trades at a PremiumFrom a valuation standpoint, AGNC Investment appears expensive relative to the industry. The company is currently trading at a premium with a forward 12-month price-to-tangible book (P/TB) multiple of 1.05X, higher than the industry average of 0.88X.Price-to-Tangible Book TTM Image Source: Zacks Investment Research The stock is also significantly more expensive than its peers, NLY and EARN. At present, NLY and EARN have forward 12-month P/TB of 0.93X and 0.89X, respectively.How to Approach AGNC Stock Now?While the ultra-high dividend yield and regular payout look eye-catching for investors watching for high-income funds, it also raises questions about the long-term ability to maintain such levels, particularly in the face of potential market volatility or shifts in interest rate policy. AGNC slashed its dividend to 12 cents from 16 cents in April 2020 and continued to pay the same amount in later periods. The company also has a history of cutting its dividend during stressful times.Despite the Fed’s recent rate cuts, persistent earnings pressure poses a significant challenge for AGNC Investment, as seen in recent quarters. If this trend continues, AGNC may face difficulties in meeting investor expectations and could be forced to reevaluate its dividend policy.Earnings Estimates Image Source: Zacks Investment Research Find the latest EPS estimates and surprises on Zacks Earnings Calendar.As the Fed has hinted at a slower pace of rate cuts this year, interest rates are expected to remain high for an extended period. This may pose challenges for AGNC, as they may limit mortgage demand refinances and new agency MBS purchases, and cause portfolio stagnation. Prolonged high rates may reduce MBS holdings’ value.Any volatility in the mortgage market, unfavorable changes in the shape of the yield curve, interest-rate volatility and deterioration of the generic financial conditions may affect the performance of the company's investments.Instead of just banking on its lucrative dividend yield, investors should analyze how AGNC navigates through interest rate changes and the mortgage market for a more appropriate entry point. Its premium valuation also warrants caution.AGNC Investment currently carries a Zacks Rank #4 (Sell).  You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.7 Best Stocks for the Next 30 DaysJust released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."Since 1988, the full list has beaten the market more than 2X over with an average gain of +24.3% per year. So be sure to give these hand picked 7 your immediate attention. See them now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report AGNC Investment Corp. (AGNC): Free Stock Analysis Report Annaly Capital Management Inc (NLY): Free Stock Analysis Report Ellington Credit Company (EARN): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks