Despite Shifting Momentum, AGNC Investment's Ultra-High-Yielding Dividend Looks Safe

AGNC Investment (NASDAQ: AGNC) offers investors a prodigious payout. The mortgage-focused real estate investment trust (REIT) currently yields around 14%. That's more than 10 times the S&P 500 's recent dividend yield of around 1.3%.

The mortgage REIT experienced some renewed headwinds in the second quarter, which might increase concerns about dividend sustainability. However, it remains optimistic about the future, which bodes well for its ability to maintain its massive monthly dividend .

The momentum shifted

AGNC Investment's financial results took a step back in the second quarter. The company reported a comprehensive loss of $0.13 per share, down from $0.48 per share of comprehensive income in the first quarter, while its net spread and dollar roll income was $0.53 per share, down from $0.58 in the first quarter. Meanwhile, its tangible book value per share declined by 5%. That decline and paying $0.36 per share in dividends during the quarter caused its economic return on tangible common equity to be negative 0.9% in the period .

CEO Peter Federico discussed the factors weighing on its results in the earnings press release. He stated, "The strong fixed income sector momentum that began in the fourth quarter of 2023 abated in the second quarter, as the Federal Reserve and market participants analyzed economic data for indications that the economy was slowing and inflation moderating." He noted that the economic environment softened a bit in the quarter as consumer spending and confidence weakened. Despite that, Federico commented: "The Fed remained steadfast in its hawkish monetary policy stance. As a result, intra-quarter volatility increased, interest rates edged higher, and agency MBS spreads to benchmark rates widened."

The negative return and declining profitability could cause concerns about AGNC Investment's ability to maintain its high-yielding payout. Potentially adding to those worries was the rise in its leverage ratio , from 7.1 in the first quarter to 7.4 in the second. However, despite that rise, the company ended the period with significant liquidity of $5.3 billion, which should ease some concerns about its ability to maintain its dividend in the near term .

Optimistic about what's ahead

While the momentum shifted in the second quarter, Federico believes that's a temporary headwind. He stated: "The longer-term outlook for Agency MBS remains very favorable and continues to provide a reason for optimism. Agency MBS spreads have continued to trade in a range that is conducive to favorable long-term risk-adjusted returns for levered investors such as AGNC."

He noted that at their current levels, MBS offers higher incremental yields than U.S. Treasuries and investment-grade corporate bonds. That should continue driving demand for those very liquid fixed-income investments. Furthermore, he believes that the continued issues in the housing market due to affordability problems and high rates will keep the supply of new MBS low. He concluded, "In light of the favorable supply demand dynamic for Agency MBS and improving monetary policy outlook, we continue to be very optimistic about both the current returns and future prospects for our business."

This optimistic outlook bodes well for the company's future. It suggests AGNC Investment should be able to continue earning a high enough return to cover its dividend. On top of that, it has strong liquidity, which it boosted during the period by issuing $434 million of new shares at a premium to its book value. That gives it the flexibility to capitalize on the current market conditions, enhancing its ability to maintain its dividend in the coming quarters.

The monster payout seems safe

While the market environment's momentum shifted in the second quarter, that hasn't dimmed AGNC's optimism. The mortgage REIT believes it can continue earning solid returns, which should enable it to keep paying its high-yielding monthly dividend. It remains an enticing option for those seeking a big-time passive income stream.

Matt DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .