Is AGNC Stock Worth Considering Based on Its 14.9% Dividend Yield?

Starwood Property Trust, Inc. STWD reported third-quarter 2024 adjusted distributable earnings of 48 cents per share, which beat the Zacks Consensus Estimate of 46 cents. The reported figure compares unfavorably to 49 cents per share reported in the year-ago quarter.

Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.

Results benefited from a rise in revenues and a decline in expenses. Also, a strong balance sheet position was another positive. However, STWD recorded a year-over-year decline in book value per share (BVPS).

Inside Starwood Property’s Headlines

Starwood Property’s total revenues were $479.5 million, down 8.1% year over year. Also, the top line missed the Zacks Consensus Estimate of $498 million.

Total costs and expenses were $294.5 million, down 3.3% from the prior-year quarter. The decline was primarily due to a fall in interest expense, depreciation and amortization and other expense.

Starwood Property’s BVPS (GAAP basis) was $19.39 as of Sept. 30, 2024, down 3.9% from $20.18 reported in the prior-year quarter.

In the reported quarter, STWD recorded repayments and sales of $1.6 billion, while it received repayments of $1.1 billion in the prior-year quarter.

The company recorded Fundings of $2 billion, which increased significantly from $743 million in the prior-year quarter.

STWD’s Strong Balance Sheet Position

As of Sept. 30, 2024, cash and cash equivalents were $357.9 million, up 38% from the prior quarter.

STWD’s originated or acquired assets were $2.1 billion, significantly up from $925 million in the prior quarter.

Loans held-for-sale was $2.8 billion, which remained flat from the prior quarter.

Starwood Property’s Dividend Update

In the third quarter, Starwood Property announced a dividend of 48 cents per share. Since its inception, the company has paid $7.7 billion in total dividends.

STARWOOD PROPERTY TRUST, INC. Price, Consensus and EPS Surprise

STARWOOD PROPERTY TRUST, INC. price-consensus-eps-surprise-chart | STARWOOD PROPERTY TRUST, INC. Quote

Currently, Starwood Property carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other REITs

Annaly Capital Management, Inc. NLY reported third-quarter 2024 adjusted earnings available for distribution per average share of 66 cents, which missed the Zacks Consensus Estimate of 67 cents. The reported figure remained unchanged from the year-ago quarter.

NLY recorded a year-over-year decline in BVPS. Nonetheless, the company’s average yield on interest-earning assets improved in the reported quarter.

AGNC Investment Corp.’s AGNC third-quarter 2024 net spread and dollar roll income per common share (excluding estimated "catch-up" premium amortization benefit) of 43 cents missed the Zacks Consensus Estimate of 47 cents. Also, the bottom line declined from the 65 cents reported in the previous quarter.

Adjusted net interest and dollar roll income of $420 million moved down 12.9% from the previous quarter. AGNC reported a third-quarter comprehensive income per common share of 64 cents against a comprehensive loss of 13 cents in the prior quarter.

Zacks Investment Research

Here are three stocks added to the Zacks Rank #24 (Strong Sell) List today:

AGNC Investment Corp. AGNC is a real estate investment trust. The Zacks Consensus Estimate for its current year earnings has been revised 8.1% downward over the last 60 days.

Ardmore Shipping Corporation ASC engages in the seaborne transportation of petroleum products and chemicals. The Zacks Consensus Estimate for its current year earnings has been revised 9.5% downward over the last 60 days.

Clean Harbors, Inc. CLH is a provider of environmental and industrial services. The Zacks Consensus Estimate for its current year earnings has been revised 4.7% downward over the last 60 days.

View the entire Zacks Rank #5 List.

Zacks Investment Research

The most oversold stocks in the financials sector presents an opportunity to buy into undervalued companies.

The RSI is a momentum indicator, which compares a stock’s strength on days when prices go up to its strength on days when prices go down. When compared to a stock’s price action, it can give traders a better sense of how a stock may perform in the short term. An asset is typically considered oversold when the RSI is below 30, according to Benzinga Pro.

Here's the latest list of major oversold players in this sector, having an RSI near or below 30.

Western Union Co

• On Oct. 23, Western Unio posted better-than-expected quarterly earnings. “We are pleased with third quarter results, which demonstrate continued progress of our Evolve 2025 strategy,” said Devin McGranahan, President and Chief Executive Officer. “We’ve maintained mid-single digit transaction growth in our Consumer Money Transfer business for five quarters in a row and are now seeing the effect on revenue, with positive adjusted consolidated revenue growth for two consecutive quarters, excluding Iraq.” The company's stock fell around 8% over the past month and has a 52-week low of $10.69.
• RSI Value: 27.25
• WU Price Action: Shares of Western Union fell 0.2% to close at $10.74 on Friday.
• Benzinga Pro's real-time newsfeed alerted to latest WU news.

Designed to provide broad exposure to the Financials ETFs category of the market, the Invesco KBW High Dividend Yield Financial ETF (KBWD) is a smart beta exchange traded fund launched on 12/02/2010.

What Are Smart Beta ETFs?

Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.

Market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns, and are a good option for investors who believe in market efficiency.

However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.

Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.

This area offers many different investment choices, such as simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies; however, not all of these strategies can deliver superior results.

Fund Sponsor & Index

Managed by Invesco, KBWD has amassed assets over $385.39 million, making it one of the average sized ETFs in the Financials ETFs. Before fees and expenses, KBWD seeks to match the performance of the KBW Nasdaq Financial Sector Dividend Yield Index.

The KBW Nasdaq Financial Sector Dividend Yield Index is a dividend yield weighted index seeking to reflect the performance of approximately 24 to 40 publicly listed financial companies engaged in the business of providing financial services and products, including banking, insurance and diversified financial services, in the US.

Cost & Other Expenses

Expense ratios are an important factor in the return of an ETF and in the long-term, cheaper funds can significantly outperform their more expensive cousins, other things remaining the same.

Operating expenses on an annual basis are 2.02% for this ETF, which makes it one of the most expensive products in the space.

It has a 12-month trailing dividend yield of 12.30%.

Sector Exposure and Top Holdings

ETFs offer diversified exposure and thus minimize single stock risk, but it is still important to delve into a fund's holdings before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.

Representing 100% of the portfolio, the fund has heaviest allocation to the Financials sector.

Looking at individual holdings, Trinity Capital Inc (TRIN) accounts for about 3.89% of total assets, followed by Agnc Investment Corp (AGNC) and Prospect Capital Corp (PSEC).

The top 10 holdings account for about 36.54% of total assets under management.

Performance and Risk

Year-to-date, the Invesco KBW High Dividend Yield Financial ETF has added about 3.05% so far, and was up about 26.76% over the last 12 months (as of 10/30/2024). KBWD has traded between $13.48 and $16.26 in this past 52-week period.

The fund has a beta of 1.42 and standard deviation of 21.02% for the trailing three-year period, which makes KBWD a medium risk choice in this particular space. With about 40 holdings, it has more concentrated exposure than peers.

Alternatives

Invesco KBW High Dividend Yield Financial ETF is not a suitable option for investors seeking to outperform the Financials ETFs segment of the market. Instead, there are other ETFs in the space which investors should consider.

Vanguard Financials ETF (VFH) tracks MSCI US Investable Market Financials 25/50 Index and the Financial Select Sector SPDR ETF (XLF) tracks Financial Select Sector Index. Vanguard Financials ETF has $10.55 billion in assets, Financial Select Sector SPDR ETF has $44.56 billion. VFH has an expense ratio of 0.10% and XLF charges 0.09%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Financials ETFs.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

Zacks Investment Research

The recommendations of Wall Street analysts are often relied on by investors when deciding whether to buy, sell, or hold a stock. Media reports about these brokerage-firm-employed (or sell-side) analysts changing their ratings often affect a stock's price. Do they really matter, though?

Before we discuss the reliability of brokerage recommendations and how to use them to your advantage, let's see what these Wall Street heavyweights think about AGNC Investment (AGNC).

AGNC Investment currently has an average brokerage recommendation (ABR) of 2.00, on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on the actual recommendations (Buy, Hold, Sell, etc.) made by 14 brokerage firms. An ABR of 2.00 indicates Buy.

Of the 14 recommendations that derive the current ABR, six are Strong Buy and two are Buy. Strong Buy and Buy respectively account for 42.9% and 14.3% of all recommendations.

Brokerage Recommendation Trends for AGNC

While the ABR calls for buying AGNC Investment, it may not be wise to make an investment decision solely based on this information. Several studies have shown limited to no success of brokerage recommendations in guiding investors to pick stocks with the best price increase potential.

Do you wonder why? As a result of the vested interest of brokerage firms in a stock they cover, their analysts tend to rate it with a strong positive bias. According to our research, brokerage firms assign five "Strong Buy" recommendations for every "Strong Sell" recommendation.

In other words, their interests aren't always aligned with retail investors, rarely indicating where the price of a stock could actually be heading. Therefore, the best use of this information could be validating your own research or an indicator that has proven to be highly successful in predicting a stock's price movement.

With an impressive externally audited track record, our proprietary stock rating tool, the Zacks Rank, which classifies stocks into five groups, ranging from Zacks Rank #1 (Strong Buy) to Zacks Rank #5 (Strong Sell), is a reliable indicator of a stock's near -term price performance. So, validating the Zacks Rank with ABR could go a long way in making a profitable investment decision.

Zacks Rank Should Not Be Confused With ABR

Although both Zacks Rank and ABR are displayed in a range of 1-5, they are different measures altogether.

The ABR is calculated solely based on brokerage recommendations and is typically displayed with decimals (example: 1.28). In contrast, the Zacks Rank is a quantitative model allowing investors to harness the power of earnings estimate revisions. It is displayed in whole numbers -- 1 to 5.

It has been and continues to be the case that analysts employed by brokerage firms are overly optimistic with their recommendations. Because of their employers' vested interests, these analysts issue more favorable ratings than their research would support, misguiding investors far more often than helping them.

In contrast, the Zacks Rank is driven by earnings estimate revisions. And near-term stock price movements are strongly correlated with trends in earnings estimate revisions, according to empirical research.

In addition, the different Zacks Rank grades are applied proportionately to all stocks for which brokerage analysts provide current-year earnings estimates. In other words, this tool always maintains a balance among its five ranks.

There is also a key difference between the ABR and Zacks Rank when it comes to freshness. When you look at the ABR, it may not be up-to-date. Nonetheless, since brokerage analysts constantly revise their earnings estimates to reflect changing business trends, and their actions get reflected in the Zacks Rank quickly enough, it is always timely in predicting future stock prices.

Is AGNC Worth Investing In?

Looking at the earnings estimate revisions for AGNC Investment, the Zacks Consensus Estimate for the current year has declined 8.2% over the past month to $1.94.

Analysts' growing pessimism over the company's earnings prospects, as indicated by strong agreement among them in revising EPS estimates lower, could be a legitimate reason for the stock to plunge in the near term.

The size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, has resulted in a Zacks Rank #4 (Sell) for AGNC Investment. You can see the complete list of today's Zacks Rank #1 (Strong Buy) stocks here

Therefore, it could be wise to take the Buy-equivalent ABR for AGNC Investment with a grain of salt.

Zacks Investment Research