Most investors own AGNC Investment (AGNC 0.10%) for its big monthly dividends and don't focus too much on its near-term price swings. The mortgage real estate investment trust (mREIT) pays a hefty forward dividend yield of 13.8%, but its stock has still quietly risen about 10% over the past 12 months.

Analysts' price targets for AGNC currently range from $9 to $11, and it's largely traded within that range over the past year. So should income-oriented investors accumulate more shares of AGNC as it treads water below Wall Street's top price target?

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How does AGNC make money?

Most REITs buy properties, rent them out, and split the rental income with their investors. But as an mREIT, AGNC doesn't buy any physical properties. It only originates its own mortgages and purchases mortgage-backed securities (MBSes).

AGNC books the interest from those mortgages and MBSes as its net profits. So unlike REITs, which generally struggle when interest rates are too high, mREITs generate more interest income in a high-interest-rate environment. Elevated interest rates also prevent borrowers from refinancing their existing loans or selling their properties too quickly.

However, mREITs also don't want interest rates to rise so much they throttle the market's demand for new mortgages. So just like a traditional bank, AGNC needs interest rates to stay in a "Goldilocks zone" to keep growing its net income.

Just like traditional REITs, mREITs must pay out at least 90% of their taxable income as dividends to maintain a favorable tax rate. mREITs generally measure their profitability through their net spread and dollar roll income per share instead of their earnings per share (EPS), so a dividend is sustainable if it's less than its net spread and dollar roll income per share.

Can AGNC keep supporting its high dividend?

In 2024, AGNC's net spread and dollar roll income declined 28% to $1.88 per share as the Federal Reserve cut interest rates three consecutive times. However, that still easily covered its $1.44 in dividends throughout the year.

On a quarterly basis, AGNC's net spread and dollar roll income per share declined sequentially in every quarter in 2024. Its tangible net book value also shrank year over year.

Data source: AGNC.

But in the fourth quarter, AGNC CEO Peter Federico said it still had a "very positive outlook for Agency MBS" as the Fed "finally shifted its restrictive monetary policy stance and began the process of returning short term rates to a neutral level."

In other words, AGNC would prefer that interest rates cool down a bit -- even though that would affect its near-term returns -- to stabilize the mortgage market. AGNC is also well insulated from a potential mortgage crisis because it allocates over 89% of its portfolio to Agency MBS assets, which are backed by Fannie Mae, Freddie Mac, or Ginnie Mae. It claims that government backing "substantially eliminates credit risk and protects us in the event borrowers default on their mortgage payments."

Furthermore, AGNC holds an exclusive "captive" broker-dealer deal with Bethesda Securities -- a member of the Fixed Income Clearing Corporation (FICC) and the Financial Industry Regulatory Authority (FINRA) -- which gives it access to lower wholesale funding rates and lower collateral requirements than other mREITs that work with independent broker-dealers.

So should you buy AGNC's stock today?

AGNC trades at $10.47 as of this writing, which represents a reasonable 24% premium to its tangible net book value of $8.41 at the end of 2024. Its high forward dividend yield of 13.8% looks sustainable and should further limit its downside potential.

Therefore, AGNC is still a fine stock to buy at these levels as long as you're holding it for the dividends and don't expect it to rally significantly over the next year. Assuming interest rates decline further this year, it will probably become even more appealing as investors rotate from CDs and T-bills toward higher-yielding REITs again.