AGNC reported earnings on April 28. With a decrease in the monthly dividend from .22 to .20, and a slight decrease in the book value from the higher $25's to $25.53, I didn't get the warm-and-fuzzy's from the quarterly performance. However, neither of these events were a surprise to me.
Since the quarter, the book value has further decreased to just under $25. The current price, in the upper $19s, represents a near 20% discount to the reported book value. However, this discount is warranted given the risk that The Fed will raise interest rates, immediately increasing the short-term borrowing costs for AGNC.
AGNC's management seems to be handling the interest rate volatility pretty well. They have decreased the leverage of the portfolio, which decreases the portfolio's exposure to rising interest rates. The sweet spot for AGNC is when rates do not change. Volatility in the rates forces the portfolio to be actively managed to reduce the effects.
Looking forward, I don't see interest rate volatility decreasing any time this year. While AGNC's 10%+ dividend yield is enticing, this just doesn't seem like a fight that I want to take on for the Common Cents portfolio. Further, I quite honestly have no idea what the company is going to report in regards to book value or dividends each month. Therefore, Common Cents maintains a SELL opinion in this position.
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