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A high yield isn’t the only thing to consider when deciding on a good income stock. Some high-yield stocks are value traps that lure less-sophisticated investors into troubled companies. This explains why it’s important to do thorough research before deciding on a dividend stock.
To help you stay ahead in the investment game, we analyzed AGNC Investment Corporation (NASDAQ:AGNC) is a high-yield stock that requires careful consideration to determine whether it’s a good income stock or a potential value trap. AGNC is the world’s second-largest mortgage REIT with a market capitalization of $7.022 billion. The REIT invests in mortgage-backed securities guaranteed by government agencies and claims its goal is to generate superior long-term shareholder returns with a substantial yield component.
AGNC currently offers an annualized dividend yield of 14.91%, which is more than 10 times the 1.47% dividend yield of the S&P 500. To determine whether this yield is sustainable, we looked at the REIT’s dividend payment history and fundamentals. AGNC’s dividend history has been volatile, with wild fluctuations over the past decade.
Additionally, the company’s stock price has shown significant volatility, falling 50% over the past five years. This decline is a key factor in maintaining a high yield despite the declining dividend. AGNC’s book value per share has also declined significantly, from $23.93 in 2013 to just $8.84 per share at the end of Q1 2024. This decline in book value is a clear indication of deteriorating financial condition and an inability to sustain dividend payments, highlighting the potential risks of high yield stocks.
AGNC is showing signs of recovery as interest rates fall, but it still has a long way to go to support its high-yielding dividend, and its volatility highlights the need for caution, which is bad for income investing.
There are better high-yield opportunities
The current high interest rate environment is creating an excellent opportunity for income-seeking investors to earn huge yields, and not just through dividend stocks… Certain private market real estate investments offer individual investors the opportunity to take advantage of these high-yield opportunities, and Benzinga has identified some of the most attractive options to consider.
For example, the Jeff Bezos-backed investment platform Private Debt Fundsprovides access to a pool of short-term loans secured by residential real estate, targeting investors a net annual yield of 7% to 9% per month. The best part is, unlike other private credit funds, The minimum investment in this case is just $100.
Don’t miss out on this opportunity to take advantage of high-yield investments while interest rates are high. Check out Benzinga’s favorite high-yield products.
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This article, “Is AGNC Investment Corp’s 14.9% Dividend a Yield Trap?” originally appeared on Benzinga.com.
