Why This 14%-Yielding Dividend Stock May Perform Well in a Recession

Economic Outlook - Warning signs of a possible recession are emerging as the U.S. federal government plans to cut jobs and tariffs may trigger a trade war [1] - The Atlanta Federal Reserve's estimate for real GDP growth has shifted from over 2% growth to a 2.4% decline [1] AGNC Investment Overview - AGNC Investment is identified as a high-yielding dividend stock that could perform well in a recessionary environment [2] - AGNC operates as a mortgage real estate investment trust (REIT), generating income through the spread between mortgage yields and funding costs [3] Investment Strategy - AGNC typically uses leverage to enhance returns and employs hedges to stabilize short-term rates, which helps mitigate risks associated with rising funding costs [4] - As of the end of 2024, 98.6% of AGNC's portfolio was in agency-backed mortgage-backed securities (MBS), significantly reducing credit risk [5] Interest Rate Impact - A recession is likely to prompt the Federal Reserve to accelerate interest rate cuts, which could lower funding costs for AGNC and widen spreads [6][9] - AGNC's average net interest spread has decreased from 2.98% in Q1 2024 to 1.91% in Q4 2024, primarily due to reduced hedging income [7] Portfolio Valuation - Lower long-term interest rates are expected to increase the value of AGNC's portfolio, as MBS values are inversely related to interest rates [10] - AGNC's tangible book value (TBV) is projected to rise with falling mortgage rates, which could enhance stock price through higher valuation multiples [10] Dividend Performance - AGNC pays a monthly dividend of $0.12, yielding over 14%, and has maintained this dividend for nearly 60 months [11] - Management projects returns of 17% to 18.5% in the current environment, supporting confidence in sustaining the dividend [11] Conclusion - AGNC is positioned as a solid high-yield stock with moderate potential price upside, expected to perform well even in a recession [12]