Question: Anyone heard or invest in this stock symbol AGNC?
I Want to buy some shares with this comp it is a big dividend the biggest one on the market has Anyone invested is it safe?
Answer:
Joey V is right on about AGNC.
Basically AGNC makes money by borrowing short term at very low interest rates and then investing in long term bonds at higher interest rates.
Because short term interest rates are very low right now AGNC is making a ton of money. Almost all of this money is being paid out to shareholders as dividends.
Of course if interest rates start to rise again AGNC is in big trouble. The company has tied up millions of dollars in long term mortgage bonds paying about 4 or 5%. It has financed the purchase of these bonds with short term loans. If short term interest rates rise to say 7%, AGNC will have to refinance its short term loans at 7%. Meanwhile, it will still be stuck receiving 4 or 5% from its mortgage bonds. In other words AGNC will be borrowing money at 7% and making money at 4 or 5%. This is not a very good business model.
Clearly a lot of investors are nervous that interest rates will rise again. This is why AGNC's dividend is so high. If you want to make a bet that interest rates will stay low - go ahead and buy AGNC. As long as interest rates are low you will be able to take in those huge dividends, but as soon as interest rates look like they might rise, AGNC is probably going down - so be careful!
AGNC is a mortgage REIT not a normal company that produces anything. Basically, the company buys mortgage-backed securities (MBS) insured by agencies (FNMA & FHMLC) which are essentially default-risk free and then uses those securities as collateral to borrow short-term money which they then use to buy more similar MBS. The REIT makes money because of the difference between the yield on the MBS and the short-term interest rates at which it can borrow money. (If you are lost at this point, do not buy this stock).
Because of its legal structure as a REIT it must pay out 90% (I think) of the money it makes as dividends or it loses its pass-through status which would mean that the money it makes is double-taxed which would mean that it would go out of business. A REIT cannot bank money for reinvestment the way a traditional corporation can which means when they make money, they pay big dividends.
Over the last year, in particular, this strategy has worked really well for AGNC because agency-guaranteed debt has done really well. This is essentially the same flight to safety that has caused treasury bonds to go up by 20% in the last year. A way less complicated strategy that made much more money than AGNC over the last year was to simply buy Treasury bonds, repo them and buy more Treasury bonds. Will that strategy keep working? Will you keep getting your big dividends and making lots of money with leveraged bets on treasury bonds? Well, maybe, for awhile but as soon as interest rates go up, you are borrowing short duration money to invest in long duration bonds and if interest rates go up, you will be slaughtered. You may continue to get decent dividends, but you will be annihilated on the value of the stock as your leveraged bets in long duration bonds get clubbed.
Interestingly, on YA there is this whole group of people who think that they need to invest in gold and silver because the US dollar is going to fall apart and we will have terrible inflation. Then there is this group of people who think that they need to buy mortgage REIT's like AGNC and NLY because they have high dividends. There are even people who believe both of those. However, if there is a shred of truth to the notion that the US dollar is going to fall apart, then interest rates will go up to reflect future inflation and AGNC will be brutalized.
I suspect that you saw a list of high dividend stocks and decided that this is a great deal because of the high dividend without having the faintest clue what it is. If you want (and you have a decent amount of money), I will set you up with an investment that mimics AGNC except that it will put out a 35% dividend. I can do that with my eyes closed while drinking heavily. I will absolutely make you sign a bunch of indemnification agreements first.....
If you don't have a view about interest rates and leveraged investing in long term bonds, you shouldn't invest in this stock (which isn't exactly a stock, anyway).
I know nothing about the inner workings of this stock but from a TA /dividend point of view it seemes like a pretty solid buy right now anyway
http://app.quotemedia.com/quotetools/cha…
as far as interest rates go....my impression is that they will stay low for quite a while yet. The economy is just starting to improve...I doubt they want to increase interest rates any time soon and stifle this growth.
http://tmx.quotemedia.com/financials.php…
http://tmx.quotemedia.com/financials.php…
Above is the financials....declining debt....rising income ..... high dividend...excellent chart looking to be undergoing a bit of a breakout right now
http://stockcharts.com/h-sc/ui?s=AGNC&p=…
I have seen a lot worse stocks suggested for investment here :)
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