Forget AGNC Investment, These Unstoppable Dividend Stocks Are Better Buys | The Motley Fool (2024)

If you are looking at AGNC Investment's ultra-high yield and thinking it's a buy, think again. These reliable dividend stocks are better choices.

The dividend yield is a blind spot that hampers many dividend investors. That may sound like an oxymoron, but it really isn't. A big yield often lures investors into high-risk companies that they wouldn't otherwise consider owning. A good example today is AGNC Investment (AGNC -0.72%) and its huge 14.5% yield. Most investors looking for a reliable stream of income would be much better off with investments like Realty Income (O -1.73%), NNN Realty (NNN -1.66%), or Federal Realty (FRT -1.01%). Here's why.

The problem with AGNC Investment

Without getting too deep into the weeds, AGNC Investment is a mortgage real estate investment trust (REIT). This is a highly complex niche of the REIT sector. Before investing in a mortgage REIT, you need to do your homework so you understand what you are actually buying, which is something akin to a mutual fund that buys mortgage bonds. But the real story here is far easier to tell, and a simple graph will do most of the talking.

Forget AGNC Investment, These Unstoppable Dividend Stocks Are Better Buys | The Motley Fool (1)

AGNC data by YCharts

There are three lines on the chart above, but start with the blue line, which is the dividend yield. Notice that it has remained high all along, usually over 10%. Dividend investors will likely have seen AGNC Investment pop up on high-yield screens for a very long time. But now look at the orange line, which is the quarterly dividend. It rose dramatically and has now been falling for over a decade. Dividend yield is a simple math equation, dividing the annualized dividend by the share price. The only way that the yield can stay high as the dividend falls is for the stock price (purple line) to fall, and as you can see, that's exactly what has happened.

If you are trying to live off of the income your portfolio generates, AGNC Investment would have been a terrible choice. You would have been left with less income and less capital. There are more reliable dividend stocks out there.

1. Realty Income has three decades of dividend success

Realty Income is the largest net-lease REIT, which means that its tenants have to pay most property-level operating costs. It has increased its dividend annually for 30 consecutive years. The company's balance sheet is investment grade rated and its portfolio stretches from North America all the way to Europe. The vast majority of its portfolio of more than 15,400 properties is in the retail sector, but it also has exposure to industrial assets to provide a little diversification.

The yield today is around 5.6%. That happens to be near the highest levels of the past decade, so it appears to be attractively priced right now.

2. NNN Realty has 34 years of dividend increases behind it

NNN Realty is also a net-lease REIT, but it isn't anywhere near as large as Realty Income. Its portfolio contains just 3,500 or so properties. That's actually pretty big; Realty Income is just jumbo-sized. Unlike Realty Income, however, NNN Realty is focused completely on U.S. retail assets. But it has a strong relationship approach with its tenants: Over 70% of its acquisitions since 2007 have come from existing lessees. Management has clearly been doing something right, because the dividend has been boosted annually for 34 years and counting.

NNN Realty's dividend yield is around 5.3% right now, which, like Realty Income, is toward the high end of the yield range over the past decade.

3. Federal Realty is a Dividend King

If dividend consistency is the most important criterion to you, however, there's only one REIT you should be looking at, and that's Dividend King Federal Realty. It has increased its dividend for a massive 56 consecutive years, which is longer than any other public REIT. The company owns strip malls and mixed-use developments, but what sets it apart is the size of its portfolio. Federal Realty only owns around 100 properties!

Management goes for quality over quantity and activity manages its properties and portfolio. It redevelops assets over time and sells assets when they have achieved their full potential (and someone offers a good price). This has proven to be a successful process for a very long time, as its dividend history indicates.

Unlike Realty Income and NNN Realty, Federal Realty's 4.3% dividend yield isn't as historically attractive. It is toward the high side over the past decade, but it is notably lower than the 6% or so it reached during the coronavirus pandemic. It's probably a good option for really conservative income investors, but anyone with a value bent will likely end up putting this REIT on their wish list and not their buy list.

You can find better dividend stocks than AGNC Investment

To be fair to AGNC Investment, it isn't designed for small investors who are looking to create an income stream in retirement. It is most appropriate for institutional-level investors using an asset allocation model focused on total return (which assumes dividend reinvestment). If living off of your dividend income is what you are trying to do, you'll be better off with unstoppable dividend payers like Realty Income, NNN Realty, and Federal Realty.

Reuben Gregg Brewer has positions in Federal Realty Investment Trust and Realty Income. The Motley Fool has positions in and recommends Realty Income. The Motley Fool has a disclosure policy.

Forget AGNC Investment, These Unstoppable Dividend Stocks Are Better Buys | The Motley Fool (2024)

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