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How Should You Approach AGNC Investment Stock Post Weak Q2 Results?
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Key Takeaways
AGNC's Q2 earnings and revenue both missed estimates amid a volatile mortgage-backed securities market.
The tangible book value fell 7% y/y to $7.81, with net interest spread narrowing sharply to 2.01%.
Despite headwinds, AGNC sees strong MBS return potential and maintains a 14.8% dividend yield.
AGNC Investment Corp. (AGNC - Free Report) posted second-quarter 2025 results on July 21, with both top and bottom lines missing the Zacks Consensus Estimates. Amid ongoing tariff concerns and persistent volatility in the mortgage market, AGNC faced a challenging environment for mortgage-backed securities (MBS), which weighed heavily on its financial performance.
One of the key metrics for mortgage REITs (mREITs) is tangible book value (TBV), a reflection of the underlying portfolio's value. In the second quarter, AGNC’s TBV declined 7% year over year to $7.81.
The average net interest spread, a critical indicator of earnings potential, narrowed to 2.01% from 2.69% a year ago. This decline reflects diminishing hedge benefits and rising hedge costs, further pressuring profitability. Adding to the headwinds, economic return on tangible common equity came in at negative 1%, slightly worse than the negative 0.9% recorded in the second quarter of 2024.
Despite these challenges, AGNC demonstrated resilience through strong risk management and ample liquidity, enabling the REIT to maintain its portfolio and selectively add assets at attractive prices. Notably, the average asset yield improved to 4.87% from 4.69% in the prior-year quarter, indicating the potential for better income generation in a more favorable rate environment.
Given the volatility in the mortgage market and AGNC's underwhelming quarterly performance, how should investors approach the stock going forward? Let us explore the key factors and assess whether AGNC remains a worthy investment in the current environment.
AGNC Investment & Agency MBS Outlook
AGNC has maintained its focus on agency MBS, a strategy that has positioned it as a strong player in this specialized market segment.
AGNC Investment primarily focuses on leveraged investments in Agency residential MBS, including residential mortgage pass-through securities and collateralized mortgage obligations. A U.S. Government agency or a U.S. Government-sponsored enterprise guarantees the principal and interest payments for such investments.
While the MBS market experienced some turbulence last quarter, it is still an attractive investment market. During the second-quarter earnings call, AGNC Investment's CEO, Peter Federico, stated, "We continue to have a favorable outlook for levered and hedged Agency MBS investments." He noted that "mortgage spreads to benchmark rates remain elevated by historical standards and range-bound, an extremely favorable return environment."
Management noted that MBS spreads have tightened since quarter-end and expects banks and foreign investor demand to grow in the upcoming period. Although the market is extremely competitive, the company's focus on agency MBS puts it in a position to possibly profit from favorable trends. However, execution will be crucial to achieving these advantages.
AGNC & Mortgage Rates
AGNC Investment’s performance and prospects are significantly influenced by mortgage rates. Mortgage rates have been declining lately. Per a Freddie Mac report, the average rate on a 30-year fixed-rate mortgage was 6.74% as of July 24, 2025, down from 6.78% in the same week a year ago.
Housing affordability challenges are expected to decline with lower mortgage rates. With rates trending lower and balanced supply/affordability playing out in the mortgage market, loan demand is witnessing an increase. With this, mortgage originations and refinancing volumes are seeing a positive trend. This will likely reduce operational and financial challenges for mREITs like AGNC, and increase the gain on sale margin and new investment activity.
The Federal Reserve's decision to keep the interest rate steady after reducing it by 100 basis points in 2024 has helped stabilize the company's funding costs. This will also keep easing earnings pressure for AGNC Investment, which will help the company to increase its dividend payout.
AGNC’s Impressive Payout
One of the closely watched aspects of AGNC Investment’s financial profile is its dividend policy.
AGNC’s current dividend yield is 14.8%. This is impressive compared with the industry’s average of 12.3%. This attracts investors as it represents a steady income stream. It currently sits at a payout ratio of 89%.
Dividend Yield
Image Source: Zacks Investment Research
AGNC Investment's peers, Annaly Capital Management (NLY - Free Report) and Arbor Realty Trust (ABR - Free Report) , are also providing investors with solid dividend options. Annaly Capital Management has an annual dividend yield of 13.4%, whereas ABR has a dividend yield of 9.9%.
Dividends aside, AGNC has a share repurchase plan in place. In October 2024, the company’s board of directors terminated the existing stock repurchase plan and replaced it with a new plan authorizing it to repurchase up to $1 billion of common stock through Dec. 31, 2026. As of June 30, 2025, full authorization was available for repurchase.
AGNC Price Performance & Valuation Analysis
Year to date, AGNC Investment shares have gained 13.7% compared with the industry’s rise of 9%. Meanwhile, AGNC peers Annaly Capital Management have gained 22.3% while Arbor Realty have declined 7.2% over the same time frame.
Price Performance
Image Source: Zacks Investment Research
From a valuation standpoint, AGNC appears expensive relative to the industry. The company is currently trading at a premium with a forward 12-month price-to-tangible book (P/TB) multiple of 1.25X, above the industry average of 0.99X. AGNC Investment is also trading at a premium compared with Annaly Capital Management and Arbor Realty, which have forward 12-month P/TB of 1.09X and 1.04X, respectively.
Price-to-Tangible Book TTM
Image Source: Zacks Investment Research
How to Approach AGNC Stock?
AGNC Investment continues to offer an appealing dividend yield, which may attract income-focused investors. However, recent developments raise concerns about the stock’s near-term prospects.
The company’s weak second-quarter performance, declining tangible book value, and tightening net interest spreads signal underlying challenges. Given the concern, the company’s earnings are expected to remain under pressure.
Earnings Estimates
Image Source: Zacks Investment Research
While management maintains a positive outlook on the agency MBS market and macroeconomic conditions show signs of stabilization, its premium valuation indicates limited upside potential, especially in an environment where profitability is under pressure.
Given these headwinds and underwhelming fundamental metrics, investors might consider selling AGNC stock.
The company currently carries a Zacks Rank #4 (Sell).
Image: Bigstock
How Should You Approach AGNC Investment Stock Post Weak Q2 Results?
Key Takeaways
AGNC Investment Corp. (AGNC - Free Report) posted second-quarter 2025 results on July 21, with both top and bottom lines missing the Zacks Consensus Estimates. Amid ongoing tariff concerns and persistent volatility in the mortgage market, AGNC faced a challenging environment for mortgage-backed securities (MBS), which weighed heavily on its financial performance.
One of the key metrics for mortgage REITs (mREITs) is tangible book value (TBV), a reflection of the underlying portfolio's value. In the second quarter, AGNC’s TBV declined 7% year over year to $7.81.
The average net interest spread, a critical indicator of earnings potential, narrowed to 2.01% from 2.69% a year ago. This decline reflects diminishing hedge benefits and rising hedge costs, further pressuring profitability. Adding to the headwinds, economic return on tangible common equity came in at negative 1%, slightly worse than the negative 0.9% recorded in the second quarter of 2024.
Despite these challenges, AGNC demonstrated resilience through strong risk management and ample liquidity, enabling the REIT to maintain its portfolio and selectively add assets at attractive prices. Notably, the average asset yield improved to 4.87% from 4.69% in the prior-year quarter, indicating the potential for better income generation in a more favorable rate environment.
Given the volatility in the mortgage market and AGNC's underwhelming quarterly performance, how should investors approach the stock going forward? Let us explore the key factors and assess whether AGNC remains a worthy investment in the current environment.
AGNC Investment & Agency MBS Outlook
AGNC has maintained its focus on agency MBS, a strategy that has positioned it as a strong player in this specialized market segment.
AGNC Investment primarily focuses on leveraged investments in Agency residential MBS, including residential mortgage pass-through securities and collateralized mortgage obligations. A U.S. Government agency or a U.S. Government-sponsored enterprise guarantees the principal and interest payments for such investments.
While the MBS market experienced some turbulence last quarter, it is still an attractive investment market. During the second-quarter earnings call, AGNC Investment's CEO, Peter Federico, stated, "We continue to have a favorable outlook for levered and hedged Agency MBS investments." He noted that "mortgage spreads to benchmark rates remain elevated by historical standards and range-bound, an extremely favorable return environment."
Management noted that MBS spreads have tightened since quarter-end and expects banks and foreign investor demand to grow in the upcoming period. Although the market is extremely competitive, the company's focus on agency MBS puts it in a position to possibly profit from favorable trends. However, execution will be crucial to achieving these advantages.
AGNC & Mortgage Rates
AGNC Investment’s performance and prospects are significantly influenced by mortgage rates. Mortgage rates have been declining lately. Per a Freddie Mac report, the average rate on a 30-year fixed-rate mortgage was 6.74% as of July 24, 2025, down from 6.78% in the same week a year ago.
Housing affordability challenges are expected to decline with lower mortgage rates. With rates trending lower and balanced supply/affordability playing out in the mortgage market, loan demand is witnessing an increase. With this, mortgage originations and refinancing volumes are seeing a positive trend. This will likely reduce operational and financial challenges for mREITs like AGNC, and increase the gain on sale margin and new investment activity.
The Federal Reserve's decision to keep the interest rate steady after reducing it by 100 basis points in 2024 has helped stabilize the company's funding costs. This will also keep easing earnings pressure for AGNC Investment, which will help the company to increase its dividend payout.
AGNC’s Impressive Payout
One of the closely watched aspects of AGNC Investment’s financial profile is its dividend policy.
AGNC’s current dividend yield is 14.8%. This is impressive compared with the industry’s average of 12.3%. This attracts investors as it represents a steady income stream. It currently sits at a payout ratio of 89%.
Dividend Yield
Image Source: Zacks Investment Research
AGNC Investment's peers, Annaly Capital Management (NLY - Free Report) and Arbor Realty Trust (ABR - Free Report) , are also providing investors with solid dividend options. Annaly Capital Management has an annual dividend yield of 13.4%, whereas ABR has a dividend yield of 9.9%.
Dividends aside, AGNC has a share repurchase plan in place. In October 2024, the company’s board of directors terminated the existing stock repurchase plan and replaced it with a new plan authorizing it to repurchase up to $1 billion of common stock through Dec. 31, 2026. As of June 30, 2025, full authorization was available for repurchase.
AGNC Price Performance & Valuation Analysis
Year to date, AGNC Investment shares have gained 13.7% compared with the industry’s rise of 9%. Meanwhile, AGNC peers Annaly Capital Management have gained 22.3% while Arbor Realty have declined 7.2% over the same time frame.
Price Performance
Image Source: Zacks Investment Research
From a valuation standpoint, AGNC appears expensive relative to the industry. The company is currently trading at a premium with a forward 12-month price-to-tangible book (P/TB) multiple of 1.25X, above the industry average of 0.99X. AGNC Investment is also trading at a premium compared with Annaly Capital Management and Arbor Realty, which have forward 12-month P/TB of 1.09X and 1.04X, respectively.
Price-to-Tangible Book TTM
Image Source: Zacks Investment Research
How to Approach AGNC Stock?
AGNC Investment continues to offer an appealing dividend yield, which may attract income-focused investors. However, recent developments raise concerns about the stock’s near-term prospects.
The company’s weak second-quarter performance, declining tangible book value, and tightening net interest spreads signal underlying challenges. Given the concern, the company’s earnings are expected to remain under pressure.
Earnings Estimates
Image Source: Zacks Investment Research
While management maintains a positive outlook on the agency MBS market and macroeconomic conditions show signs of stabilization, its premium valuation indicates limited upside potential, especially in an environment where profitability is under pressure.
Given these headwinds and underwhelming fundamental metrics, investors might consider selling AGNC stock.
The company currently carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.