58 Monthly Dividends Later and This Ultra-High-Yielder Still Isn't a Dividend Stock You Can Count On

AGNC Investment (NASDAQ: AGNC) is a mortgage real estate investment trust (REIT). Given that REITs are designed to pass income on to investors in a tax-advantaged manner, it seems logical to believe that the stock, with its huge 14%+ dividend yield, would fit perfectly into a dividend investor's portfolio. That's just not the case, and 58 consecutive monthly dividends don't change that fact. Here's what you need to know before you buy AGNC Investment.

What does AGNC Investment do?

On AGNC Investment's investor services home page, the company tells you exactly what its goal is: "Favorable long-term stockholder returns with a substantial yield component." That's very different from a company that has the goal of providing investors with dividend income. For example, on its investor services home page, property-owning REIT Realty Income describes its purpose as follows: "Realty Income is committed to providing our shareholders with dependable monthly dividends through maintaining a conservative capital structure and prudently planning for the sustainable growth of our platform."

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Image source: Getty Images.

Take a step deeper into AGNC Investment's investor services site, and you'll find a review of the REIT's performance. The metric listed is total return, which assumes that all dividends get reinvested. This is the vital key to assessing whether or not AGNC Investment is a good fit for your portfolio.

The truth is that AGNC Investment has a strong track record when it comes to total return. The company proudly highlights that its total return is 10% annualized since its initial public offering in May 2008 through to year-end 2024. It is a perfectly fine way for an investor to get exposure to the mortgage sector, and investors focused on asset allocation would be wise to consider it.

However, that doesn't make it a reliable income stock. Any investor who is trying to live off their dividend income should think carefully before they are lured in by the siren song of that 14%+ dividend yield.

The proof is in AGNC Investment's dividend record

Most income investors are looking for a dividend that gets paid reliably and, most likely, grows over time. The reason is pretty simple to understand, given that most income investors are trying to live off the dividend income their portfolios generate. The 58 consecutive monthly dividend payments that AGNC Investment has paid at the same level since 2020 sound reasonable enough on that score.

But don't forget the pernicious effect of inflation, which eats away at the value of money over time. There was a massive spike in inflation following the coronavirus pandemic, during which food got more expensive. But the buying power of AGNC Investment's dividend didn't increase along with it. That dividend stayed the same, so each check an investor collected and spent didn't buy as much as the one before it.

AGNC data by YCharts.

There's more to this story, however, because the streak of reliable dividends only goes back to early 2020. What happened prior to that point is just as important as what happened after. AGNC Investment's dividend rose quickly after its IPO and then started a long downtrend, as the chart above highlights. An investor who bought this REIT with the goal of generating a reliable income stream would have been left with less income and less capital, since the stock price has fallen along with the dividend. That represents a terrible outcome for most income investors.

AGNC data by YCharts.

So how does the total return come out to be positive? The answer is that AGNC Investment has paid out more in dividends than the decline in the value of its stock price. Thus, dividend reinvestment has resulted in long-term growth of capital. If you spent that dividend, you would have still ended up with more income over time than you lost in capital, but that's a very nuanced way to look at a dividend investment -- and it isn't the way most dividend investors think about income investing.

There's nothing wrong with buying AGNC Investment

Nothing here is meant to be a knock on AGNC Investment. It is a well-respected mortgage REIT. But that doesn't make it a good choice for an investor trying to live off the dividends they generate from their portfolio. And holding the dividend static for years isn't proof that you can rely on AGNC Investment's dividend to help you pay your bills. This ultra-high-yielder just isn't a dividend stock you can count on for that... and it isn't trying to be.

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Reuben Gregg Brewer has positions in Realty Income. The Motley Fool has positions in and recommends Realty Income. The Motley Fool has a disclosure policy.