AGNC Investment Corp.'s AGNC performance and prospects are significantly influenced by changes in mortgage rates. Mortgage rates have been relatively stable over the past few weeks, hovering near 7%, but changes may be on the horizon as Trump's tariffs could drive them.

The Trump administration’s several policy decisions, including proposed tariffs, will influence mortgage rates. Trump administration plans to impose reciprocal taxes on countries that levy tariffs on U.S. imports. This includes key trade partners such as China, Japan, South Korea, and the European Union. His tariff plan includes a 25% duty on steel and aluminum, increased levies on Chinese goods, and threats of similar tariffs on Canada and Mexico. 

Such tariffs would likely raise expenses for imported home-building materials, increasing construction costs and home prices. Meanwhile, market participants believe that potential price increases for a range of goods across the economy could lead the Federal Reserve to keep the rates unchanged or even raise them. This, in turn, would push up mortgage rates.

If mortgage rates stay higher for an extended period, AGNC may encounter several difficulties. High rates usually result in less demand for mortgage refinances, which may limit the amount of new agency mortgage-backed securities (MBS) available for the company to purchase. This will restrict the company's ability to grow and possibly cause its portfolio to stagnate. Higher rates for an extended period may reduce the value of its current MBS holdings, resulting in a significant drop in book value.

Given this, the question arises: Is it time to part ways with the AGNC stock or hold for now? Let us take a look at other factors at play.

AGNC & Dividend Payout

One of the most closely watched aspects of AGNC Investment's financial profile is its dividend policy. The company has a record of paying monthly dividends.

AGNC’s current dividend yield is 13.8%. This is impressive compared with the industry’s average of 10.7% and attracts investors as it represents a steady income stream. It currently has a payout ratio of 75%.

AGNC Investment is not the only dividend-paying stock among Zacks Industry – REIT and Equity Trust. Stocks like Annaly Capital Management NLY and Ellington Credit Company EARN are also providing investors with solid dividend options.

NLY has an annual dividend yield of 11.9%, whereas EARN has a dividend yield of 14.7%.

Dividends aside, AGNC has a share repurchase plan in place. In October 2024, the company’s board of directors terminated the existing stock repurchase plan and replaced it with a new plan authorizing it to repurchase up to $1 billion of common stock through Dec. 31, 2026.

The company plans to buy back shares only when the repurchase price is lower than the then-current estimate of tangible net book value per common share.

AGNC Investment & Favorable Agency MBS Outlook

AGNC has maintained its focus on agency MBS, a strategy that has positioned it as a strong player in this specialized market segment. 

AGNC Investment primarily focuses on leveraged investments in Agency RMBS, including residential mortgage pass-through securities and collateralized mortgage obligations. A U.S. Government agency or a U.S. Government-sponsored enterprise guarantees the principal and interest payments for such investments.

The fundamental outlook for fixed income, particularly agency MBS assets, has shown signs of improvement lately. AGNC’s management believes that the agency MBS market could benefit from a combination of factors, including a steepening yield curve and reduced rate volatility.

Against this improved investment backdrop, AGNC Investment generated a positive economic return of 13.2% in 2024, driven by the company’s compelling monthly dividend. The company’s 2024 performance shows that it can generate robust investment returns when Agency MBS spreads are wide and steady.

AGNC Stock Trades at a Discount

From a valuation standpoint, AGNC Investment appears inexpensive relative to the industry. The company is currently trading at a discount with a forward 12-month price-to-earnings (P/E) multiple of 6.56X, lower than the industry average of 8.54X. 

Price-to-Earnings

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The stock is trading below its peers NLY's P/E multiple of 7.74X while trading at a premium compared to EARN's P/E multiple of 5.74X.

How to Approach AGNC Investment Stock Now?

Given the volatility in the mortgage market, AGNC continues to witness persistent earnings pressure, which poses a significant challenge.

Earnings Estimates

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Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

Nonetheless, the favorable Agency MBS outlook will likely provide a tailwind to the company’s revenue growth.

Sales Estimates

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Its ultra-high dividend yield and regular payout look eye-catching for investors watching for high-income funds. Also, despite volatility in mortgage markets, AGNC shares have gained 27.9% in the past year, outperforming the industry’s growth rate of 13.3%.

Price Performance

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Thus, investors should not rush to sell the AGNC stock now. Instead, they should analyze how the company navigates the change in the mortgage market to optimize its returns. Its discounted valuation also warrants a pause.

Those who want to invest in the stock can consider waiting for a more appropriate entry point. The stock currently carries a Zacks Rank #3 (Hold).  You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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