Why AGNC Investment Stock fell 13.3% in February

What happened

The events of February have cooled the shares of AGNC Investment ( AGCN -0.42% )a mortgage real estate investment trust (mREIT) that saw its stock price drop 13.3% during the month, according to data provided by S&P Global Market Intelligence.

The slump continued a trend for the high-dividend stock that saw its share price continue a deterioration that began after hitting a 52-week high of $18.84 on June 9. 24 and have since recovered around $13.27 on March 3.

As an mREIT, AGNC makes its money through leveraged purchases and sales of residential mortgage-backed securities primarily from Fannie Mae, Freddie Mac, and Ginnie Mae. It pays dividends every month, and the $0.12 per share it pays on March 9 will mark its 23rd straight month at that level since the $0.16 dividend cut in March 2020. That gives it a yield current of about 10.92%.

So what

Two major factors appear to be influencing the market’s treatment of this 14-year-old MREIT: rising interest rates and a decline in the company’s estimated tangible net book value. The value of securities held by AGNC in its portfolio declines as rates rise, so the current rate environment has naturally resulted in some downward pressure.

But AGNC’s problems with book value surfaced in mid-2021 when it fell from $17.96 per share in late April to $16.82 a month later. Things haven’t improved. AGNC announced Feb. 10 that its estimated tangible net book value had dropped to $14.91 per share.

At the same time, it said that “in line with industry practice” it would no longer provide monthly announcements of the estimated net book value of the entanglement, although its dividends would still be paid monthly. The stock price has fallen about 8% since that Feb. 10 announcement.

Image source: Getty Images.

Now what

AGNC, with a market capitalization of around $6.8 billion, isn’t the only MREIT to see its price stumble. For example, the shares of its largest counterpart, $10.4 billion Annaly Capital Managementfell almost 12% in February.

The market factors in expectations of rising rates into the value it places on mREIT stock prices. But it’s mostly income stocks, and with AGNC’s modest payout ratios of 37.72% based on cash flow and 67.29% based on 2022 earnings guidance, that handsome flow of dividends seems reasonably safe.

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