AGNC Stock Heavily Rewards Investors With Double-Digit Payouts
AGNC Stock Pays Out a Monthly Dividend
With major market indices in the U.S. trading at or near an all-time high it could feel frustrating investing in today’s market. One investment strategy that generates a current return no matter the market conditions is investing in high-dividend-yielding stocks.
Yes, the price of the stock will move up and down daily, as does the overall market, but there is a dividend paid to investors from the revenue that is generated. One company that should be considered is AGNC Investment Corp (NASDAQ:AGNC), which has a current income yield of 10.3%.
The reason why AGNC is considered a high-dividend-yielding stock is that it pays a higher dividend yield than the benchmark index. That benchmark index is the S&P 500 Index, which is offering an average dividend yield of 1.9%. AGNC stock pays a double-digit return solely based on the income that is paid out.
Now let’s take a more in-depth look at why AGNC stock is a great top high-dividend-paying stock. First we’ll look at the valuation of the company.
As an investor, the worst feeling in the world is overpaying for an investment and chasing a high-dividend-yielding stock. The best investments are made when there is a high dividend being paid and there is a discount on the price. Over the long term, this is a proven method of lowering the risk within an investment portfolio and generating a high rate of return.
A lower valuation and a high dividend yield being paid by AGNC stock is the best way to describe such an investment.
The piece of evidence that shows a low valuation is based on the current price-to-earnings (P/E) ratio. AGNC currently has a P/E ratio of 4.4 times, which could be thought of as paying $4.40 for each dollar of earnings. This is in comparison to 13.9 times for the industry average.
Therefore, on a comparable basis, AGNC stock is trading at a serious discount to the companies that it directly competes with. This disconnect in valuation occurs for two major reasons: 1) there is a lot of uncertainly with the company, or 2) there is poor management in place.
Strength of Earnings
In order to determine how volatile a stock is going to be, and why there’s a discount on a stock price, the past and future earnings of a company should be seriously considered. The past earnings show how the company has grown, and how stable the earnings are. The future earnings show how the company is expected to grow.
Below is a table of the total annual earnings per share that have been reported over the past two years.
|Year||Actual Annual Earnings Per Share|
In the table above, the earnings came in at the very same amount, which shows evidence that the company is very stable and solid. This point is proven further when taking a peak into the future earnings. Below is a table of the expected earnings for the next few years.
|Year||Forecasted Annual Earnings Per Share|
The table above illustrates once again that the company has very stable and predictable earnings, which are growing as time passes. This is why it can pay a high dividend to investors. For an income investor, this would ideal.
When taking a look into how the company is being managed, two questions are: 1) “Is it being done in the interest of the business and investors?” and 2) “Is it seen by the high margins of the business, which are the highest within the industry?” This could be seen for all three profitability ratios (gross, operating, and profit margins).
Looking at one of the ratios gives an understanding of how AGNC differs compared to its industry peer group. The profit margin is the percentage of money that remains once costs are subtracted from the revenue. Presently for AGNC, the profit margin is 77%, compared to an industry average of 24%. This is also the reason why AGNC stock is able to pay a dividend yield that is roughly three times the industry average.
High margins support the thesis that the management team is very hands-on with the business operations, and is running the company very efficiently. It also signals to the markets that there is no reckless spending within the company.
Final Thoughts About AGNC Stock
More time spent in AGNC stock should result in higher returns over time. Therefore, the key to this investment strategy is spending more time in the market, rather than trying to time the market. In the long term, there is the possibility of seeing the stock trade higher, which adds to the bottom line further because of the cheap valuation.
Another reason to consider AGNC is that savings and money market accounts are offering near-zero-percent returns.