A $20 AGNC Share Bought at Its 2008 IPO Has Paid $51 in Dividends. The Stock Trades Near $9.
AGNC might seem like a lousy long-term investment -- until you factor in its dividends.
AGNC (AGNC +1.02%) initially traded at $20 per share upon its May 15, 2008, IPO, but now trades at under $9. Despite this decline, the stock has paid out $51.16 per share in dividends since its debut, resulting in a total return of approximately 520% for investors who reinvested those dividends. AGNC invests in mortgages and mortgage-backed securities, collecting interest while being required to distribute at least 90% of its taxable income as dividends to maintain a lower tax rate.
To fund purchases of longer-term MBS, AGNC borrows short-term rates through repo transactions, which depend on the relationship between short-term and long-term interest rates. AGNC's share count has surged from 15 million at IPO to around 1.26 billion today due to continuous share issuance, leading to underperformance compared to the S&P 500 (^GSPC +0.60%).
The massive forward dividend yield of 16.4% might be alarming, but it remains sustainable as long as AGNC's net interest spread stays positive, which it has been at around 2% in recent years. With a projected 2026 EPS of $1.56, AGNC's EPS will comfortably cover its forward dividend rate of $1.44 per share. Although trading at less than six times its current earnings, AGNC is not necessarily the best long-term dividend play.
An investment in an S&P 500 index fund with reinvested dividends would have generated a higher total return of 669% over the same period.
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