AGNC’s Book Value Fell 17% in One Quarter. Here’s Why I’m Still Not Worried About the 17.5%-Yielding Dividend Just Yet.

AGNC Investment (AGNC) reported a significant dip in its tangible book value in Q3, with a 16.9% decrease to $7.13 per share. This decline, driven by a surge in Treasury yields affecting mortgage-backed securities, has impacted the company's shares and pushed its dividend yield above 17.5%. Despite this, AGNC has maintained its monthly dividend at $0.12 per share since 2020, as this income is not tied to its book value.

The company's net spread and dollar roll income for Q3 stood at $0.37 per share, just above the $0.36 declared dividends. However, this thin margin, coupled with a rising cost of funds at 3.09% from 2.89%, has put pressure on AGNC. This squeeze, along with a slight decline in asset yield from 4.89% to 4.95%, has negatively impacted earnings over the past two quarters, with net spread income dipping from $0.42 to $0.37.

On a positive note, AGNC raised $992 million in stock above book value during the quarter, adding $2.5 billion in assets at wider spreads. This strategic move, combined with a total cost of capital around 19% and an existing portfolio generating a 20% return, suggests that AGNC's dividend remains aligned with its business economics. CEO Peter Federico highlighted that current and new investments are yielding around 19%, supporting the dividend's sustainability.

While a 17.5% yield after a 17% quarterly book-value decline raises concerns, AGNC's core earnings still cover the dividend. The company's returns remain in line with its costs, justifying a cautious optimism regarding the dividend. Nonetheless, AGNC is still considered a high-risk income holding, warranting close monitoring of key metrics each quarter. For those seeking stock tips, The Motley Fool's Stock Advisor has a proven track record, delivering an 831% average return, significantly outpacing the S&P 500's 209%.