AGNC: The Perfect Stock?

Posted by Rob on June 23rd, 2012 at 1:08pm

I fell in love with American Capital Agency Corp. (AGNC) in January 2011. Yes, true, you shouldn't fall in love with a stock because in most cases you will lose your investment; however, I make an exception for AGNC. AGNC is a low-risk mREIT which boast a 15.5% dividend yield and is up 16% YTD in 2012.

For those who may be unfamiliar, a mREIT is a mortage real estate investment trust. By law, REITs are required to pay out 90% their taxable income to shareholders. mREITS are more profitable when they can "bank on the spread," or in other words, take advantage of low interest rates in order to procure property. With interest rates currently so low, REITs like AGNC are doing very well. Furthermore, Federal Reserve Chairman Ben Bernanke has repeated the Fed's intent to keep interest rates at or near the current levels at least until mid-2014. As a result, one can assume REITs such as AGNC will continue to enjoy large interest rate spreads and thus return a significant dividend to shareholders.

AGNC posted earnings of $1.29 per share in the first quarter of 2012, beating analysts estimates by $0.14 per share. With a beta of .2, the stock currently pays a quarterly dividend of 15.5%.

I hold AGNC in my Roth-IRA. I re-invest the quarterly dividend and am currently up 43% on the security (dividend and share appreciation). I plan to hold AGNC until 2014 or until the Federal Reserve indicates an impending change in interest rates.

Disclosure: I am long AGNC. This blog post is not a buy or sell recommendation of any security; investors should do their own due diligence before buying or selling stock.

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