We recently compiled a list of the 10 Extreme Dividend Stocks to Invest in Now. In this article, we are going to take a look at where AGNC Investment Corp. (NASDAQ:AGNC) stands against the other dividend stocks.
In 2024, dividend stocks underperformed the broader market as attention shifted to high-flying tech stocks. The Dividend Aristocrat index, which tracks companies with a minimum of 25 consecutive years of dividend growth, rose only 6.3% compared to the broader market’s impressive 27% gain. Despite this, analysts remain positive about the long-term outlook for dividend stocks, as they have historically delivered stronger performance over extended periods.
Analysts believe dividend stocks could see a resurgence in 2025 due to increased market volatility. The last time these stocks outperformed the broader market was in 2022, as concerns over a potential recession pushed investors toward sectors like utilities, consumer goods, and others associated with value stocks and reliable earnings. While there’s no guarantee that recession fears or a bear market will emerge in 2025, the significant rallies of 2023 and 2024—which have contributed to dividend stocks lagging—often lead to heightened volatility, particularly if ambitious growth projections begin to falter. Moreover, as the new administration implements its economic policies, periods of uncertainty and market disruptions could arise. In such scenarios, dividend-paying stocks, seen as stable and dependable, might become more attractive to investors seeking steady returns during turbulent times.
Also read: 10 Best Halal Dividend Stocks To Invest In
Dividend yields play a crucial role in drawing investors to dividend stocks. While analysts often suggest prioritizing stocks with a strong track record of dividend growth, the allure of high yields remains significant. Experts caution against falling for yield traps, urging investors to focus on companies that steadily enhance shareholder returns. Still, proponents of high-yield investments emphasize the importance of dividend yields in an overall investment strategy.
In their study Income Illusions: Challenging the High Yield Stock Narrative, published in the March 2024 Journal of Asset Management, Yin Chen and Roni Israelov analyzed the impact of dividends on investment returns. They divided stocks into high-dividend and low-dividend categories based on the median dividend yield from the prior year. Their research, covering the top 1,500 US stocks from January 1964 to December 2021, revealed that high-dividend portfolios outperformed in both returns and risk. These portfolios achieved an average annual return of 13.8% with 15.6% volatility, compared to low-dividend portfolios, which returned 11.8% annually with a higher volatility of 21.9%. This performance gap resulted in a 3.6% difference in compound annual growth rate. In addition, high-dividend portfolios experienced smaller losses during market downturns. However, while high-dividend stocks generally performed better over the full study period, a long-short investment strategy in these stocks resulted in an annual loss of nearly 1% between 2003 and 2021, with the strongest returns recorded between 1983 and 2002.
Simply chasing high-yield stocks isn’t enough; investors should also examine a company’s balance sheet and overall financial health. Firms with solid financials are better positioned to increase their dividend payouts consistently. The best-case scenario is when a company combines high dividend yields with steady dividend growth—a goal that many businesses have successfully achieved. Given this, let’s take a look at some of the best dividend stocks with extreme dividend yields.
Our Methodology:
For this list, we used a stock screener and selected dividend stocks with yields ranging from 9% to 23%, as of January 23. Among those stocks, we chose companies that have relatively stable dividend histories, however, a lot of the companies on the list don’t have a consistent record of paying dividends due to their exceptionally high yields. The stocks are ranked in ascending order of their dividend yields, as recorded on January 23. We also mentioned hedge fund sentiment data for these stocks using Insider Monkey’s database of 900 hedge funds as of Q3 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
An accountant holding a calculator and paperwork, representing the complex financial regulations the company must manage.
AGNC Investment Corp. (NASDAQ:AGNC)
Dividend Yield as of January 23: 14.83%
An American real estate investment trust company, AGNC Investment Corp. (NASDAQ:AGNC) mainly invests in mortgage-backed securities, which function similarly to bonds. Unlike property-owning REITs, which are relatively straightforward and comparable to managing a rental property on a larger scale, AGNC deals in securities that are traded throughout the day. These investments are influenced by interest rate fluctuations and property market factors, such as housing demand and loan repayment rates.
Despite the associated risks, AGNC Investment Corp. (NASDAQ:AGNC) remains a strong investment option. Unlike traditional REITs that own and lease properties, this mortgage REIT focuses on investing in mortgage-backed securities, functioning somewhat like a mutual fund. The company’s value is directly linked to the performance of its mortgage securities portfolio. As of June 30, 2024, AGNC’s investment portfolio was valued at $66.0 billion, consisting of $59.7 billion in Agency MBS, $5.3 billion in net forward purchases or sales of Agency MBS in the “to-be-announced” market, and $1.0 billion in credit risk transfer (CRT) and non-Agency securities, along with other mortgage credit investments.
AGNC Investment Corp. (NASDAQ:AGNC), one of the best dividend stocks, pays monthly dividends to shareholders. The company has never missed a dividend since its IPO in 2008 and shifted to a monthly dividend policy in 2014. Since it went public, the company has distributed $13.4 billion to shareholders through dividends. Currently, it offers a monthly dividend of $0.12 per share and has a dividend yield of 14.83%, as of January 23.
The number of hedge funds tracked by Insider Monkey owning stakes in AGNC Investment Corp. (NASDAQ:AGNC) grew to 24 in Q3 2024, from 19 in the previous quarter. These stakes have a total value of more than $230.3 million.
Overall AGNC ranks 3rd on our list of the extreme dividend stocks to invest in now. While we acknowledge the potential for AGNC as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than AGNC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
