AGNC Investment Corp. AGNC and Annaly Capital Management NLY are two of the biggest names within the mortgage real estate investment trusts (mREITs) industry. Both offer favorable long-term stockholder returns and massive dividend yields.

But which one offers the better opportunity for investors right now? Let us break down the strengths, risks and growth potential of these two leading industry players.

AGNC & NLY: Business Model & Portfolio Diversification

AGNC has maintained its focus entirely on agency mortgage-backed securities (MBS), a strategy that has positioned it as a strong player in this specialized market segment. The company 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 Investment’s management believes that the agency MBS market can benefit from a combination of factors, including a steepening yield curve and reduced rate volatility. However, execution will be crucial to achieving these advantages.

Conversely, NLY has adopted a broader diversified capital allocation strategy. The company's investment portfolio includes residential credit, mortgage servicing rights (MSR), and agency MBS. This comprehensive strategy aims to lower volatility and sensitivity to interest rate changes while simultaneously generating appealing risk-adjusted returns.

NLY's diversified investment strategy will likely be a key contributor to long-term growth and stability. Annaly’s diversified strategy is not just for stability but also for long-term growth, with multiple aspects to pull across different cycles in the housing and credit markets.

AGNC & NLY: Capital Distribution & Dividend Yield

AGNC Investment and Annaly are showcasing strong capital distribution programs that reflect confidence in their liquidity and earnings stability. Both have a record of paying monthly dividends.

AGNC currently has a staggering dividend yield of 16.27% compared with the industry’s average of 11.3%. It currently sits at a payout ratio of 81%. The company has raised its dividend once in the last five years.

NLY also pays a quarterly dividend. In March, it announced a cash dividend of 70 cents per share for the first quarter of 2025, marking a 7.7% hike from the prior payout. Its current dividend yield is 14.58%, and its payout ratio is 96% of its earnings. The company has raised its dividend twice in the last five years.

Dividend Yield

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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. Similarly, Annaly has a share repurchase plan in place. In December 2024, NLY’s board of directors authorized a common share repurchase program, which will expire on Dec. 31, 2029. Under the program, the company may repurchase up to $1.5 billion of its outstanding shares of common stock.

AGNC Investment & Annaly: Interest Rate Sensitivity

AGNC and NLY are sensitive to interest rate changes, though the impacts vary.

AGNC Investment’s performance and prospects are significantly influenced by the interest rate environment due to its concentrated agency MBS exposure. While these government-backed assets offer low credit risk, they leave AGNC vulnerable to rapid shifts in short-term rates.

When interest rates rise, AGNC’s borrowing costs increase quickly, hurting profit margins. Though the company actively uses hedging strategies such as interest rate swaps and options to manage some of this exposure, hedges can only partially reduce the impacts.

AGNC’s financials have been adversely impacted since early 2022 when the Fed began its interest rate hiking cycle. It recorded interest expenses of $75 million in 2021, which surged 733% to $625 million in 2022. Also, the interest expenses rose 266% year over year to $2.3 billion in 2023.

On the contrary, Annaly has positioned itself to better withstand interest rate volatility through its diversified portfolio, particularly with its investments in MSR, and residential and commercial credit assets. Given this, the increase in NLY’s borrowing costs was lower than AGNC's in the period of high interest rates.

In 2021, Annaly recorded an interest expense of $249 million, which increased by 425% to $1.3 billion in 2022. Also, interest expense rose 193% year over year to $3.8 billion in 2023.

MSR increases in value when interest rates rise because higher rates reduce mortgage prepayment activity. This dynamic allows Annaly to offset the typical decline in agency MBS valuations that occurs during periods of rising rates. Residential credit includes non-agency mortgages and securitized loans that are more credit-sensitive than rate-sensitive, offering higher yields and different risk profiles than agency MBS.

How Do Estimates Compare for AGNC & NLY?

The Zacks Consensus Estimate for AGNC’s 2025 and 2026 earnings implies year-over-year declines of 11.2% and 3.9%, respectively. 

AGNC Earnings Estimates

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The Zacks Consensus Estimate for NLY’s 2025 and 2026 earnings implies year-over-year increases of 5.6% and 1.2%, respectively. (See the Zacks Earnings Calendar to stay ahead of market-making news.)

NLY Earnings Estimates

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AGNC Investment & Annaly: Price Performance & Valuations

Over the past year, both AGNC and NLY outperformed the industry. AGNC Investment has gained 11.2% and Annaly has risen 16.6% against the industry’s decline of 0.2%.

Price Performance

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From a valuation standpoint, AGNC and NLY appear expensive relative to the industry.

AGNC Investment is currently trading at a premium with a forward 12-month price-to-tangible book (P/TB) multiple of 1.07X, while Annaly is trading at a forward 12-month (P/TB) multiple of 0.98X. Both are above the industry average of 0.90X. Nonetheless, NLY is trading at a discount to AGNC.

Price-to-Tangible Book TTM

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AGNC & NLY: Which mREIT is Worth Betting on Now?

AGNC Investment and Annaly have a record of reducing dividends during stressful times, but NLY’s recent payouts have been more stable than AGNC's. Also, Annaly has recently hiked its dividend, reflecting the company’s confidence in its earnings and liquidity position.

Further, AGNC has mainly exposure to the agency MBS sector, positioning it to have more exposure to rate-driven volatility. Alternatively, NLY provides diversification and balance, which are better suited to offset interest rate fluctuations and capitalize on opportunities.

Annaly’s 2025 and 2026 earnings growth trajectories are impressive. Also, in terms of price performance and valuation, NLY appears more attractive. 

Hence, investors looking for long-term stability with a higher dividend yield can consider parking their cash in the Annaly stock at current levels. 

Both AGNC and NLY currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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