Is AGNC Investments a good REIT to buy on a downside?

AGNC Investment Corp. (AGNC) in Bethesda, Maryland, operates as a real estate investment trust (REIT) in the United States. The Company invests in pass-through residential mortgage-backed securities and secured mortgage bonds for which principal and interest payments are guaranteed by a US government-sponsored company or US government agency.

AGNC is very popular among income investors due to its high dividend yield. AGNC’s $1.44 annual dividend yields 10.71% on its current share price. On February 10, AGNC declared a common stock dividend of $0.12 per share, payable March 9, 2022. However, the company’s dividend payouts have declined by 12.6% over the past three years and by 7.3% over the past five years. Additionally, the company has a total debt of $47.59 billion. And AGNC’s trailing 12-month cash balance is $11.79 billion, translating to net debt of $35.80 billion, while its net operating cash flow on Last 12 months amounted to 1.57 billion dollars. Moreover, it has a current ratio and a quick ratio of 0.22 and 0.21, respectively, which calls into question its ability to meet its short-term obligations.

Shares of AGNC have fallen 20.7% in the past year and 12.9% since the start of the year. The stock is down 18.6% over the past six months to close yesterday’s trading session at $13.10.

Here’s what could shape AGNC’s performance in the near term:

Poor financial performance in its last quarter

For its fourth fiscal quarter, ended Dec. 31, AGNC’s overall net income was negative $137 million, down substantially from its value of $218 million in the prior quarter. Its net spread and dollar roll income available to common shareholders was $351 million, down 10.9% quarter-over-quarter, while its net spread and dollar income per common share fell 10 .7% sequentially to reach $0.67. Its tangible net book value per common share as of December 31, 2021 was $15.75, reflecting a 4% decline from $16.41 per common share as of September 30, 2021.

Dark expectations from analysts

Analysts expect AGNC’s revenue to decline 54.3% year-over-year to $241.10 million in the current quarter, ending March 31, 2022. Plus, its revenue is expected to decline 26.4% year-over-year in the current year. Additionally, consensus EPS estimates indicate a decline of 13.2% in the current quarter, 17.1% in the following quarter and 18.2% for the current year. And its EPS is expected to decline 1.8% per year over the next five years.

Stable profit margins

AGNC’s 100% gross profit margin is 58.4% above the industry average of 63.12%. Additionally, its net income margin of 89.49% is 193.4% higher than the industry average of 30.51%.

POWR ratings reflect uncertain outlook

AGNC has an overall C rating, which translates to Neutral in our own POWR Rankings system. POWR ratings are calculated by considering 118 separate factors, with each factor weighted to an optimal degree.

The stock has a B rating for quality, which is consistent with its stable profit margins.

AGNC also has a D rating for Sentiment. The gloomy sentiment of analysts about the stock justifies this rating.

Among the 29 titles of REITs – Mortgage industry, AGNC is ranked #16.

Beyond what I said above, one can see the value, growth, momentum and stability of AGNC grades here.

View Top Rated Stocks in the REIT Sector – Mortgages here.

Conclusion

AGNC is a high yielding dividend stock and is favored by income investors. However, its current debt could be a concern. In addition, the interest rate hikes expected this year could be a significant headwind for REITs and keep AGNC under pressure. Thus, we think it might be wise to wait for more clarity on the Fed’s rate hike plan before investing in the stock.

How AGNC Investment Corp. (AGNC) compare to its peers?

Although AGNC has an overall POWR C rating, one might consider taking a look at its industry peers, MFA Financial, Inc. (MFA), TPG RE Finance Trust, Inc. (TRTX) and Great Ajax Corp. (AJX), which have a B (buy) rating.

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AGNC shares fell $13.10 (-100.00%) in premarket trading on Wednesday. Year-to-date, AGNC is down -12.19%, compared to a -9.56% rise in the benchmark S&P 500 over the same period.

About the Author: Subhasree Kar

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a master’s degree in economics, she gained knowledge in equity research and portfolio management at Finlatics. Continued…

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