"Dividend investing draws in many with the promise of steady income, but chasing high yields carries real dangers. High yields often signal trouble: a stock price drop from poor performance might inflate the yield artificially, masking risks like dividend cuts if earnings weaken. Rising interest rates can also make these stocks less appealing compared to safer bonds, triggering outflows and further price declines."
"AGNC Investment ( NASDAQ:AGNC ) is a mortgage real estate investment trust (mREIT) focused on agency residential mortgage-backed securities. Those are securities backed by government-sponsored agencies like Fannie Mae, Freddie Mac, and Ginnie Mae. The mREIT leverages borrowed funds to amplify returns on these assets, paying out most income as monthly dividends. AGNC currently sports a dividend yield around 14.5%, backed by its $11 billion portfolio."
High dividend yields can mask significant risks when they result from falling stock prices or weakened earnings. Rising interest rates can reduce demand for high-yielding equities relative to safer bonds, causing outflows and further price declines. Unsustainable payouts strain company finances and increase the likelihood of dividend reductions. High payout ratios magnify vulnerability to earnings downturns and can hurt total returns. Some firms still yield above 10% and attract buy ratings. AGNC Investment is a mortgage REIT concentrated in agency RMBS, uses leverage to boost returns, pays monthly dividends, and currently yields about 14.5% on an $11 billion portfolio.
Read at 24/7 Wall St.
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