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AGNC Investment vs. Annaly: Which mREIT is the Smarter Play?
ZACKSยท2025-07-07 14:36

Core Insights - AGNC Investment Corp. (AGNC) and Annaly Capital Management (NLY) are leading players in the mortgage real estate investment trusts (mREITs) sector, both providing attractive long-term returns and substantial dividend yields, but differing in portfolio strategies and risk profiles [1] Capital Distribution & Dividend Yield - AGNC has a dividend yield of 15.34% with a payout ratio of 81%, but has not increased its dividend in the last five years [2] - NLY announced a cash dividend of 70 cents per share for Q1 2025, a 7.7% increase from the previous payout, with a current dividend yield of 14.37% and a payout ratio of 101% [3] - AGNC has a share repurchase plan authorizing up to $1 billion of common stock until December 31, 2026 [6] - NLY has a share repurchase program allowing for the repurchase of up to $1.5 billion of common stock until December 31, 2029, but has not executed any repurchases since its announcement [7] Business Model & Portfolio Diversification - AGNC focuses exclusively on agency mortgage-backed securities (MBS), which exposes it to volatility, while NLY employs a diversified capital allocation strategy that includes residential credit and mortgage servicing rights, reducing rate sensitivity [8][11] - NLY's diversified strategy is expected to contribute to long-term growth and stability, allowing it to capitalize on various market cycles [12] Interest Rate Sensitivity - AGNC is significantly affected by interest rate changes due to its concentrated agency MBS exposure, leading to increased borrowing costs and profit margin pressures [13][14] - AGNC's interest expenses surged from $75 million in 2021 to $2.9 billion in 2024, reflecting its vulnerability to rate hikes [15] - NLY's diversified portfolio allows it to better withstand interest rate volatility, resulting in lower increases in borrowing costs compared to AGNC [16] Benefits From Mortgage Rates - Both AGNC and NLY are expected to benefit from declining mortgage rates, with the average 30-year fixed-rate mortgage dropping from 6.95% to 5.80% year-over-year [19] - NLY is likely to see stronger book value appreciation due to tightening spreads in the Agency MBS market, while AGNC may benefit from increased refinancing activity [20][21] Earnings Estimates - AGNC's earnings estimates for 2025 and 2026 indicate year-over-year declines of 11.2% and 3.9%, respectively [22] - NLY's earnings estimates for the same period suggest year-over-year growth of 6.3% and 1.4% [25] Price Performance & Valuations - Over the past year, AGNC gained 12.6% and NLY rose 17.7%, outperforming the industry average of 8.6% [29] - AGNC trades at a forward price-to-tangible book (P/TB) multiple of 1.10X, while NLY trades at 0.99X, both above the industry average of 0.98X [31][34] Conclusion - NLY's recent dividend hike and diversified strategy position it as a more attractive option for long-term stability and growth compared to AGNC, which has faced challenges due to its concentrated agency MBS exposure [36][38]