AGNC Investment Corp. (AGNC) is a mortgage real estate investment trust. The company invests primarily in agency mortgage-backed securities and uses leverage to enhance returns.

AGNC is the second largest publicly traded mortgage REIT based on its $7.6 billion market cap. Only Annaly Capital Management (NLY) is larger.

AGNC is one of the few securities that pays dividends on a monthly basis instead of quarterly. The company’s stock currently has an annual dividend yield of 10.6%, making it a high yield security as well as a monthly dividend payer.

Investors have taken notice of AGNC. Rapidly growing hedge fund Athanor Capital has made AGNC its single biggest individual stock holding. Keep reading this article to learn more about AGNC and its investment prospects.

Growth & Valuation

AGNC reported its Q2 2020 results on July 27^th. Tangible net book value grew to $14.92 per share from $13.62 in Q1 2020. Tangible book value per share declined $1.66 from $16.58 in the same quarter a year ago.

Since 2010, AGNC has not been able to maintain meaningful growth. The company’s annual dividend per share has decreased from $5.60 in 2010 to an annualized rate of $1.44 based on its most recent dividend payment. Earnings-per-share and book value per share have declined over time as well.

With that said, the company’s results are sporadic due to the use of significant leverage coupled with interest rate sensitivity. Business results could very well pick up significantly when the economy recovers.

The company also authorized the repurchase of up to $1 billion of its own shares through the end of 2020. This represents more than 13% of the company’s market cap at current prices. AGNC spent $147 million on share repurchases in its most recent quarter.

Shares of AGNC are down significantly post COVID-19. The stock traded above $18/share prior to March 2020. It is currently trading for under $14/share.

AGNC is a rare company in that they will oscillate between repurchasing shares when management feels they are undervalued, and issuing shares at other times to raise capital. The current share repurchase announcement shows that management believes the stock to be undervalued.

Final Thoughts

We expect AGNC to see a recovery over the next several years as the United States’ economy recovers. Dividend reductions are never a positive, but there is a chance for quick dividend growth ahead off of a reduced dividend amount.

Overall AGNC is a high-risk, potentially high-reward security due to its leveraged business model and interest rate sensitivity. The recent share repurchase announcement and vote of confidence from Athanor Capital’s investment in the company are signs that AGNC is undervalued at current prices.

Ben Reynolds is CEO of Sure Dividend. Sure Dividend helps individual investors build high quality dividend growth stock portfolios for the long run.