AGNC investment (AGNC 0.20%) is an attractive dividend stock. The mortgage-focused real estate investment trust (REIT) currently yields 14%. That is more than 10 times higher than the S&P500‘S Dividend yield of around 1.3%. In addition, it pays its dividend monthly rather than quarterly like most other dividend stocks.

These features make it a tempting Dividend share for many income-oriented investors. However, it has some negative characteristics that not do it The Right one for you.

The dividend makes up the entire return

Investors basically have two options to make money with a stock investment: Dividend income and the increase in the value of the shares. These two factors together result in the Total return. Over the past few decades, about 15% of a stock’s total return has come from dividends. The rest has come from the company’s ability to retain earnings to increase value for shareholders through capital investments, accretive acquisitions, and share buybacks.

Mortgage REITs like AGNC Investment are different. REITs have to pay out of distribute at least 90% of their taxable income to shareholders in the form of dividends to comply with IRS regulations.he massive their total returns thus tends to come from dividend income. This factor has even more pronounced with AGNC Investment over the years:

AGNC Total Return data by YCharts

As the chart shows, AGNC Investment’s entire return comes from dividends. The share price has fallen by an average of 4% per year. That is largely because it has to issue more shares to create new Mortgage-backed securities (MBS) Investments to expand its portfolio. if you are looking for price appreciation potential for your shares in addition to your dividend income, AGNC Investments could not Be the best Dividend stock for you.

The payout has faced sustainability issues in the past and may do so again in the future.

While AGNC Investments currently offers an attractive monthly income stream, the REIT has struggled to maintain its dividend in the past, cutting its payment several times over the years:

AGNC dividend data from YCharts

The REIT currently expects Maintaining the dividend despite changing dynamics in the fixed-income sectorThe economy has begun to slow while consumer spending has declined. Despite these factors not yet Interest rates have been lowered, leading to greater volatility in the mortgage market. On a positive note, the company’s longer-term outlook for the agency MBS market very cheap, as the Fed is likely to start cutting interest rates soon. This gives cause for optimism that it can continue to pay the dividend at the current level.

However, given the past cuts and the prospect of future problems in the mortgage market, the REIT’s dividend could not be sustainable forever. So For those who expect a very safe payout, it may not be the best dividend stock.

Aside from that, it seems as if AGNC Investment will at best maintain its dividend in the future. This means that investors are unlikely to get a raise. This factor makes the REIT best suited for those who want more of a steady income stream.

At the same time, the lack of dividend growth could affect the company’s ability to generate attractive total returns. The best total returns have been achieved by companies that increased their dividends. According to data from Ned Davis Research and Hartford Funds, dividend increasers and initiators have generated an average annual total return of 10.2% over the past 50 years. By comparison, an equally weighted dividend generated an average total return of 7.7%. S&P 500 Index.

However, the situation is different for companies that leave their dividend policy unchanged and achieve an average annual return of 6.7%, as well as for companies that cut dividends or cancel them altogether. Negative-0.6%. If AGNC maintains its distribution or eventually cuts it again, its total returns could lag those of the S&P 500. The stock price will likely continue to fall, and if AGNC cuts its distribution, its decline could potentially accelerate.

A high-dividend stock with higher risk and higher return

AGNC Investments offers a tremendous monthly income stream. However, that doesn’t mean it’s the best option for everyone dividend investor. The mortgage REIT’s distribution makes up most of its total return, and it may not be able to maintain its current dividend level in the future, let alone increase the payment. It is best suited for those seeking income rather than growth and are willing to take on more risk for a higher monthly distribution, which will likely make up your entire return.