12%+ Dividend Yields Duel

Core Insights - The article compares the performance of two high-yielding REITs, AGNC Investment (AGNC) and Dynex Capital (DX), highlighting that while both offer substantial dividends, their popularity and performance differ significantly [1][2]. Performance Comparison - DX has shown modest outperformance over AGNC from January 3, 2017, to July 9, 2024, particularly for investors who started positions in 2017, 2018, or 2019 [1][2]. - AGNC has recently outperformed DX for positions initiated between March 2022 and the present, attributed to AGNC trading at a premium to its projected book value [2][4]. - The article emphasizes that AGNC's inflated share price enhances its performance metrics, despite DX's better protection of book value during market fluctuations [2][4]. Book Value Analysis - A detailed analysis of share price and trailing book value (BV) indicates that DX's book value declined less than AGNC's during early 2022, showcasing DX's superior performance in protecting its book value [3][4]. - The article notes that while DX's book value has been more stable, AGNC's share price has been more resilient due to its ability to issue shares at a premium [4][5]. Price-to-Book Ratio Insights - The current price-to-book ratio gap between AGNC and DX is approximately 20%, suggesting that DX would need to increase by 20% or AGNC to decrease by 16% for their ratios to equalize [7]. - The author argues that the significant premium for AGNC is unwarranted, recommending investors consider shifting from AGNC to DX for better risk-reward dynamics [7]. Interest Rate Considerations - Both AGNC and DX reported negative net duration as of March 31, 2024, indicating potential vulnerabilities to interest rate movements [9]. - The article cautions that while lower interest rates may seem beneficial for mREITs, the inherent negative convexity of agency MBS could lead to losses when rates fluctuate significantly [9].