Forget about AGNC investing and buy this great dividend growth stock instead

If you’re a dividend investor, you’re probably very concerned about dividend yield.Basically that’s the big attraction. AGNC investment (AGNC 0.21%) And the yield is a whopping 15%. Compare this to the relatively modest 3.7% yield offered by the company. rexford industrial (Rex -0.42%), you might want to pass on Rexford. There are important dividend differences here that shouldn’t be ignored, and they’re likely to make Rexford a better long-term dividend stock for most investors.

AGNC vs. Rexford: Business Model

AGNC Investment is a mortgage real estate investment trust (REIT). That means buying mortgages packaged in securities like bonds, giving shareholders direct exposure to the mortgage market. This is not an easy business, and AGNC’s value depends on the publicly traded mortgage bonds it purchases. In many ways, it’s more like a mutual fund than a typical REIT.

Rexford is a typical REIT. Purchase physical real estate and rent it to tenants. In this case, Rexford focuses on the Southern California market by industrial property type and geography. Although this concentration increases risk, Southern California is the largest and typically best-positioned industrial market in the United States. A shortage of real estate, strict zoning laws, and a trend toward converting industrial assets into housing are driving up rents.

AGNC vs. Rexford: Dividend History

Here’s where things get interesting. AGNC’s dividend has been very volatile over time. As the graph below shows, there was a sharp rise, but then there was a general decline for more than a decade. Stock prices followed suit. This trend could absolutely change, but if you’re trying to live off the income your portfolio generates, acquiring AGNC will likely reduce your income and leave you with a huge capital loss. Remarkably, that yield is high across the span, typically in his double digits. If you’re considering investing in AGNC right now, you should ask yourself whether the risk is worth the reward, given its dismal dividend history. For most people, probably not.

AGNC data by YCharts

Rexford’s dividend history varies widely. The company has increased its dividend every year for 11 years. And the dividend has grown by a hefty 16% per year over the past 10 years. That’s an impressive growth rate for his REIT, but it’s not as big of an anomaly as it might seem. The most recent dividend increase rate was approximately 10%. Being a large player in a niche market with structural advantages clearly works to Rexford’s and its shareholders’ advantage. However, over time, as the stock price has increased along with dividend payments, the yield has become much lower, currently at around 3.7%.

REXR data by YCharts

AGNC vs. Rexford: Yield or Yield on Purchase Price

But what about the huge yield you get from AGNC Investment? Obviously, you can’t expect this yield to last. What’s interesting here is that Rexford’s yield is only a fraction of what AGNC is today. But what if you had bought Rexford at its peak in 2013, when the quarterly dividend was $0.12 per share? At that point, the yield on the purchase price would have been 3.3%, based on a stock price of $14.15. , which will be close to the current yield.

However, if you held the stock until today, your quarterly dividend would be $0.4175 per share. This equates to a yield on the purchase price of 11.8%. This is not far from AGNC’s yield. Of course, there’s no way to guarantee that Rexford will continue to increase its dividend in the future as it has in the past. However, if you want to live off dividends after retirement, Rexford’s story should be far more persuasive than AGNC’s, which cuts its standard dividend.

Not a bad REIT, but not for dividend investors

The issue here is that AGNC isn’t necessarily a bad investment. It is aimed at institutional investors who use asset allocation models and prioritize total return (assuming dividend reinvestment) over dividend yield. Even if the yield is very high, it is not suitable for most dividend investors. Rexford, on the other hand, turns out to be a much better dividend stock to own, despite its relatively low yield. But what’s really interesting is that Rexford’s yield today is actually historically high, suggesting the stock is currently on sale. In other words, now may be the time to buy.