AGNC (NASDAQ: AGNC), one of the largest mortgage real estate investment trusts (mREITs) in the U.S., pays a forward dividend yield of 14.1%. That massive dividend often attracts a lot of attention from income-driven investors, but is it a stable long-term investment? Let’s review its net interest spread and why that metric matters much more than its dividend yield.
How does AGNC make money?
As an mREIT, AGNC only buys mortgages and mortgage-backed securities (MBS). To mitigate its risk, AGNC allocates 89% of its $94.7 billion portfolio to Agency MBS assets, which are backed by Fannie Mae, Freddie Mac, or Ginnie Mae. That government support should shield it from another housing market meltdown.
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AGNC collects interest on those investments and distributes at least 90% of its taxable income as dividends to maintain a lower tax rate. To generate more cash for future MBS purchases, it sells its own MBS to counterparties and agrees to repurchase them at a set price plus interest on a future date. Those counterparties hold the MBS as collateral, but the accumulated interest is still paid back to AGNC. The company refers to these sales as “repo transactions”.
For this strategy to work, AGNC must earn enough interest from its long-term MBS to cover its purchases of short-term MBS. In other words, the Fed’s short-term rates must remain lower than its long-term rates. If the yield curve inverts (short-term yields exceed long-term yields) when the economy is distressed, its net interest spread — or the gap between the average yield AGNC earns on its MBS and the average costs of funding those purchases — will decline.
What happened to AGNC over the past few years?
AGNC posted a net interest spread of 1.92% in 2025, compared to 2.42% in 2024 and 3.06% in 2023. Its spread declined as its funding costs outpaced its asset yields, mainly because it was still locked into the older rates of its legacy repo transactions.
But as those lower-rate hedges “roll off”, it can replace them with more profitable ones. That’s why its net interest spreads stabilized over the past year.
|
Metric |
Q1 2025 |
Q2 2025 |
Q3 2025 |
Q4 2025 |
Q1 2026 |
|---|---|---|---|---|---|
|
Net Interest Spread |
2.12% |
2.01% |
1.78% |
1.81% |
2.06% |
Data source: AGNC.
For 2026, analysts expect those stabilizing yields to boost its EPS 5% to $1.57, which will easily cover its forward yield of $1.44 per share. So even though AGNC might initially seem like a high-yield trap, its dividends are actually sustainable, and its core business is improving. Therefore, it’s still a reliable investment for income-oriented investors.
