If you're a dividend stock investor, you've probably come across AGNC Investment (NASDAQ: AGNC) and its over 16% dividend yield. While high yields can sometimes be a red flag, AGNC has paid out the same $0.12 monthly dividend since 2020. Meanwhile, its net spread income, which is used to fund its payout, continues to exceed its dividend. AGNC is a mortgage real estate investment trust (mREIT) that holds a portfolio of agency-backed mortgage-backed securities (MBS). Because its fixed-income investments are backstopped by government agencies like Fannie Mae and Freddie Mac, they carry very little default risk. However, like most long-term bonds, MBS values can be significantly impacted by movements in interest rates and, for MBSes specifically, changes in mortgage rates. Traditionally, changes in mortgage spreads, or the difference in rates between mortgages and 10-year Treasuries, have a big impact on the value of MBSes. Not surprisingly, with the Fed changing course and beginning an interest rate hiking cycle, the value of AGNC's MBS portfolio took a hit in Q3. This was reflected in AGNC's tangible book value (TBV) falling nearly 17% quarter over quarter, or $1.45 per share, to $7.13 from $8.58 at the end of Q2. TBV is essentially the value of AGNC's MBS portfolio, and this is the metric on which mREITs are typically valued. It said that as of Oct. 3, its TBV had risen 3% from quarter-end, or a little over 2% when accounting for its monthly dividend accrual.
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