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Mortgage Rates are Relatively High: How to Approach AGNC Stock Now?

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Key Takeaways

  • AGNC's TBV fell 7% y/y to $7.81 in Q2, with net interest spread narrowing to 2.01% from 2.69%.
  • Mortgage rates remain relatively high, limiting originations and refinancing growth for mREITs.
  • AGNC trades at a 1.17X P/TB premium, above peers and the industry average.

AGNC Investment Inc.’s (AGNC - Free Report) performance and prospects are significantly influenced by mortgage rates. The said rates are declining but are still relatively high. Per a Freddie Mac report, the average rate on a 30-year fixed-rate mortgage was 6.63% as of Aug. 7, 2025, down from 6.72% a week prior, but up from 6.47% in the same week a year ago. 

Given relatively higher mortgage rates, originations volume and the refinancing index will not witness significant growth in the near term. This will likely increase operational and financial challenges for mREITs like AGNC, and increase the gain on sale margin and investment activity. Relatively higher rates are also impacting the book value of AGNC's investments.

In the second quarter, AGNC’s tangible book value (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, pressuring profitability. 

Given relatively higher rates, the company’s earnings are expected to remain under pressure in the near term.

Earnings Estimates

 

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Given the concern, many investors must be wondering how to approach the AGNC stock now. To answer this, it is essential to delve into the details and evaluate various factors at play to analyze its investment worthiness.

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 15.2%. This is impressive compared with the industry’s average of 12.5%. This attracts investors as it represents a steady income stream. It currently sits at a payout ratio of 89%.

Dividend Yield

 

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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 13.6%, whereas ABR has a dividend yield of 10.2%.

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, the full authorization was available for repurchase.

The company enjoys a decent financial position. It has solid access to attractive funding across a broad spectrum of counterparties and financing conditions. As a result, it has flexibility in the opportunistic enhancement of its portfolio. As of June 30, 2025, AGNC Investment’s liquidity, including unencumbered cash and Agency MBS, was $6.4 billion. Given a decent liquidity position, its capital distribution seems sustainable.

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 added 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 the second 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 Price Performance & Valuation Analysis

Year to date, AGNC Investment shares have gained 12.1% compared with the industry’s rise of 8.2%. Meanwhile, AGNC peers Annaly Capital Management have gained 20.8%, while Arbor Realty have declined 9.1% over the same time frame.

Price Performance

 

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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 1.17X, above the industry average of 1.01X. AGNC Investment is also trading at a premium compared with Annaly Capital Management and Arbor Realty, which have forward 12-month P/TB of 0.89X and 0.98X, respectively.

Price-to-Tangible Book TTM

 

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How to Approach AGNC Stock Now?

AGNC Investment continues to offer an appealing dividend yield, which may attract income-focused investors. However, relatively higher mortgage rates may affect the company’s near-term earnings. Also, the company has not increased its dividends over the past five years and has a record of reducing dividends during stressful times.

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 may consider selling the AGNC stock now.

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.


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