AGNC Investment’s Achilles Heel (NASDAQ:AGNC)

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We opened with a title: AGNC Investment Corp.’s (NASDAQ:AGNC) Achilles Heel; a story that might be considered unpleasant, yet understandable. Although markets always perfectly set prices, a more valuable question must be answered, one which gauges how real or representative that value is. We hope to shed a brighter light on this question. And for high dividend payers such as AGNC, the other primary question is still always about dividend safety. We have covered AGNC previously in our AGNC Investment: We’re Accumulating Despite Interest Rate Uncertainty. Our stance on accumulating hasn’t changed through dividend reinvestment and short calls, but we are adding more depth to the story.

AGNC’s Business

The company borrows money at the short-end of bond market (variable) and loans money into the mortgage markets at fixed, higher rates. This creates risk especially during turbulent interest rates periods, one that the bond market just entered.

Collapsing Price

A chart created from TradeStation Securities follows.

AGNC Weekly Chart

TradeStation Charts

Next, a table showing the Net Tangible Book Value vs stock price is included.

*Rounded values.

Clearly, the stock price follows the Net Tangible Book value, not a genius revelation, but nevertheless important.

Continuing, dividend coverage follows in the next table. The best estimate for coverage compares the dividend to the Net Spread/Dollar Roll Income found in slide 23.

Dividend Coverage 1stQ 20 3rdQ 20 1stQ 21 3rdQ 21 4thQ 21
Net Spread & Dollar Roll Income* $0.55 $0.80 $0.75 $0.75 $0.75
Dividend $0.36 $0.36 $0.36 $0.36 $0.36

* Rounded values.

The dividend coverage has been one and a half to two times the payout. We included 1st quarter 2020 with its exposure to a higher interest rate period. With the world health circumstances for the balance of 2020 and 2021, the Federal Reverse cut the

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