“Don’t judge a book by its cover” is an old saying to keep in mind when considering high-yield dividend stocks. A good example is the nearly 15% return offered by . AGNC Investment(NASDAQ: AGNC). In fact, it’s too good to be true if you need a reliable source of income. Most investors are probably better off. real estate income(NYSE: O) And the rate of return is 5.6%.
There is nothing inherently wrong with investing in AGNC. Mortgage real estate investment trusts (REITs) have done a pretty good job of generating total returns for shareholders over time. But investment total revenue very different from invest for income.
If you’re investing for income, you’ll want to save and spend the dividends the company distributes. If you invest for total return, you should reinvest your dividends to maximize your profits. This difference is important because AGNC Investment does not behave like a traditional REIT that owns real estate. Think of it more like a company that invests in mortgage securities, which are quite complex investment products. Looking at the graph below, you can see why spending the high income stream provided by AGNC Investment may have been a bad decision.
The blue line is the dividend that rose sharply after the REIT IPO and then began to decline. The purple line is basically the stock price tracking dividends. If you’ve spent your dividends along the way, you’ll now have less income and a less valuable position. However, as AGNC Investments bought and sold mortgage securities over time, the total return line increased significantly as large dividends more than offset the decline in the stock price. However, you can only make a profit if you reinvest your dividends.
Adding up the accumulated dividends and final stock value, investors would have about $30,000 from their initial $10,000 investment, so there is an argument to be made that dividends collected over time have compensated for the decline in stock value. However, if you’ve been spending your dividends on living expenses, you’ve ended the period with a lower income stream due to dividend cuts and a substantial loss on your initial investment. This is not a win for income-focused investors.
AGNC investing is suitable for a small group of investors, but that group does not include people looking for a stable source of income.
Stable Income Streams At the other end of the spectrum is Realty Income. This net lease REIT has increased its monthly payments every year for 30 consecutive years. They’ve even increased their dividend every quarter for 100 consecutive quarters. It’s probably the closest thing to stocks that can replace a paycheck. Add in an attractive yield (5.6% based on current share price) and it becomes clear why dividend investors should dig deep here.
Net-lease REITs typically own single-tenant properties where the tenant is responsible for most property-level operating expenses. While individual properties have a risk of tenants failing to pay rent, in large portfolios the risk is very low. With a portfolio of more than 15,400 properties, Realty Income is the largest net-rental REIT. It also has an investment grade balance sheet. That gives them easier access to capital markets, generally at more attractive costs than their smaller competitors. As a result, Realty Income may become more aggressive in its acquisitions.
Being the largest player in the net rental sector has its downsides. Most notable is that it will take a lot of trading to meaningfully increase Realty Income’s earnings and earnings. But with a portfolio spread across the U.S. and Europe, and an increasingly broad list of property types in that portfolio (management recently added casinos and data centers to its opportunity set), Realty Income has plenty of avenues for growth, including: tug. So investors should probably expect slow, steady growth to continue.
Income investors looking for a reliable long-term dividend stock may want to consider adding Realty Income stock to their portfolio, despite underperforming the higher-yielding AGNC Investment over the past few months. It won’t thrill you, but it will provide an attractive payout stream while helping you sleep better at night. AGNC Investment, on the other hand, isn’t really designed to provide stable dividends over time. If you buy ultra-high yields, you’re likely to get mixed up due to the very real risk that at some point there will be another dividend cut and the income story will be upended.
Before purchasing shares of AGNC Investment Corp., consider the following:
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When should you consider it? nvidia This listing was created on April 15, 2005… If you invested $1,000 at the time of referral; You will have $822,755!*
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Ruben Gregg Brewer I have a position at Realty Income. The Motley Fool has a position in and recommends Realty Income. All kinds of idiots Disclosure Policy.
