Lock in an 11.4% Yield (Paid Monthly) by July 29?
Looking for Oversized Dividends? Read This
If you are a passive income investor, two things will likely appeal to you: a high dividend yield and a monthly payment schedule. A high dividend yield means you can put in less money up front to earn your target level of annual dividend income. A monthly payment schedule means you get a dividend check every month, which can be great for budgeting income and expenses, since most of our bills have to be paid monthly.
The company we are looking at today provides both. But investors who want to lock in that monthly income stream need to act quickly. The next round of dividend checks will be mailed out in a just a few weeks. To get your name on the distribution list, the last day to take action is July 29.
Let me explain.
AGNC Investment Corp
AGNC Investment Corp (NASDAQ:AGNC) is a real estate investment trust (REIT) headquartered in Bethesda, Maryland. It is internally managed and invests primarily in residential mortgage-backed securities.
Given the role that mortgage-backed securities played in the last financial crisis, investing in them may seem quite risky. The thing is, though, AGNC is not investing in all types of mortgage-backed securities. Instead, its main focus is residential mortgage-backed securities that are guaranteed by the Government National Mortgage Association (Ginnie Mae), Federal National Mortgage Association (Fannie Mae), or the Federal Home Loan Mortgage Corporation (Freddie Mac). (Source: “Q4 2019 Investor Fact Sheet,” AGNC Investment Corp, last accessed July 9, 2020.)
With principal and interest payments guaranteed by a U.S. Government-sponsored enterprise or a U.S. Government agency, these securities can provide a predictable income stream to AGNC.
And because AGNC chooses to be regulated as a REIT, it must return at least 90% of its profits to investors through dividends. The company has a monthly dividend rate of $0.12 per share, which comes out to an annual yield of 11.4% at the current share price.
Looking at the financials, we see that, in 2019, AGNC generated $2.16 per share in net spread and dollar roll income, which was in excess of its $2.00-per-share dividend declared for the year. (Source: “AGNC Investment Corp. Announces Fourth Quarter 2019 Financial Results,” AGNC Investment Corp, January 29, 2020.)
In the first quarter of 2020, AGNC’s net spread and dollar roll income came in at $0.57 per share, which, once again, covered its dividends declared for the quarter ($0.48 per share). (Source: “AGNC Investment Corp. Announces First Quarter 2020 Financial Results,” AGNC Investment Corp, April 29, 2020.)
Lock in an Oversized Income Stream by July 29?
On July 9, the REIT’s board of directors declared AGNC’s July monthly dividend: $0.12 per share. The dividend will be paid on August 11 to shareholders of record as of July 31. (Source: “AGNC Investment Corp. Declares Monthly Common Stock Dividend of $0.12 per Common Share for July 2020,” AGNC Investment Corp, July 9, 2020.)
The most important date to keep in mind, though, is the ex-dividend date: July 30. This is because, if an investor buys AGNC stock on or after the ex-dividend date, they will not be entitled to this dividend. Instead, the dividend is paid to the seller. Therefore, if an investor wants to collect this REIT’s upcoming monthly dividend, they will need to own shares of AGNC before the ex-dividend date. That is, the last day to take action will be July 29.
At the end of the day, keep in mind that, due to financial market dislocations associated with COVID-19, AGNC Investment Corp decided to reduce its monthly dividend from $0.16 per share to $0.12 per share in April, meaning, while it is a generous yielder, the current payout level is actually the result of a dividend cut. So I wouldn’t call AGNC stock a slam dunk. But if the company can keep paying the current monthly dividend, it would be offering a more generous income stream than most stocks on the market.