The Yield Showdown: AGNC Investment vs. Federal Realty
If you invest in dividends, a stock’s dividend yield holds significant importance. High yields often seem appealing; however, they come with risk considerations that investors must address.
The challenge for dividend investors lies in weighing the high-yield option of AGNC Investment (NASDAQ: AGNC) against the more stable offering from Federal Realty (NYSE: FRT), another real estate investment trust (REIT).
AGNC Outshines with its Yield
AGNC Investment boasts an impressive dividend yield of over 15%. In comparison, Federal Realty’s yield stands at 3.9%. This difference is stark, as AGNC’s yield surpasses the S&P 500 index’s yield of approximately 1.2% and even outpaces the average REIT yield of around 3.7%, as indicated by the Vanguard Real Estate Index ETF (NYSEMKT: VNQ). Thus, AGNC is clearly the higher-yielding option.
Image source: Getty Images.
Even so, it’s essential to recognize that Federal Realty’s 3.9% yield, while lower than AGNC’s, exceeds market averages, making it a constructive option for investors. Although less appealing than AGNC’s yield, it serves a purpose in a diversified portfolio.
Assessing the Risks of AGNC’s High Yield
When delving deeper, Federal Realty showcases an advantage in its dividend consistency. This REIT is classified as a Dividend King, having raised its dividend annually for 57 consecutive years, the longest streak among publicly traded REITs.
In contrast, AGNC Investment’s dividend has remained unchanged at $0.12 per share monthly since April 2020, following a reduction from $0.16 in May 2019. Its decrease began with a cut from $0.20 to $0.18 in August 2016. Thus, AGNC’s dividend history reveals a trend of decline, indicating a potential risk for those valuing consistent dividends.
Understanding the Difference in REIT Strategies
The distinction between these two REITs extends to their business models. Federal Realty focuses on owning and managing strip malls and mixed-use properties, generating income through tenant leases similar to owning rental properties. With around 100 properties, its assets are substantial and well-located.
On the other hand, AGNC Investment functions as a mortgage REIT. It invests in mortgage-backed securities and aims to profit from the difference between interest earned and its operating costs. As a result, AGNC resembles a mutual fund in its structure, and its performance benchmarks are quite different. While AGNC has successfully delivered high total returns over time, this strategy diverges significantly from providing steady income growth.
Invest in AGNC with Caution
AGNC Investment can be a suitable investment for those seeking a mortgage REIT that aims for attractive total returns. However, potential investors looking for a dependable dividend stock may find themselves disappointed by its volatility. Instead, a reliable Dividend King like Federal Realty could better suit those needing stable dividend payouts, illustrating that yield is just one facet of dividend investing.
Take Advantage of New Investment Opportunities
Have you ever felt you missed your chance to invest in high-performing stocks? Good news is here.
Occasionally, our team of analysts identifies “Double Down” stock recommendations—companies they believe are poised for growth. This may be the right moment to invest before it’s too late. The past performance of stocks like:
- Nvidia: A $1,000 investment in 2009 would be worth $363,593 today!*
- Apple: A $1,000 investment in 2008 would have grown to $48,899!*
- Netflix: A $1,000 investment in 2004 would now amount to $502,684!*
Currently, we are issuing “Double Down” alerts for three outstanding companies, making it a prime time for new investments.
See 3 “Double Down” stocks »
*Stock Advisor returns as of December 23, 2024
Reuben Gregg Brewer holds positions in Federal Realty Investment Trust. The Motley Fool has positions in and recommends Vanguard Real Estate ETF. The Motley Fool has a disclosure policy.
The views and opinions presented here belong solely to the author and do not necessarily reflect those of Nasdaq, Inc.
