Dividend investors often begin their search for stocks by looking at dividend yields. This is a logical move given its focus on income, but there is a risk that performance becomes more important than other factors that can also have a material impact on an investor’s long-term results. Annaly Capital(NYSE: NLY) and AGNC Investment(NASDAQ:AGNC)With their huge double-digit returns, they need more careful investigation.
For reference, the S&P 500 Index(SNPINDEX: ^GSPC) is yielding about 1.1% today. The average financial stock yields 1.5%. The average real estate investment trust (REIT) yields 3.6%. Mortgage REITs Annaly and AGNC yield 12.9% and 13.9%, respectively. Here are some key things to consider before purchasing either of these two mortgage REITs and why you may prefer one over the other.
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What do mortgage REITs do?
A proprietary REIT purchases physical assets, such as office buildings, and then rents them to tenants. The primary business of mortgage REITs like Annaly and AGNC is holding mortgage securities that have been packaged into bond-like investments. In some ways, a mortgage REIT, which manages a portfolio of mortgage securities, is similar to a bond fund. In particular, both Annaly and AGNC highlight total return as a key objective.
This is important for dividend lovers. While most proprietary REITs focus on providing reliable and often steadily growing dividends, Annaly and AGNC’s dividend histories have been very volatile. There have been long periods where dividends have steadily declined.
AGNC Data by YCharts
If you’re trying to live off the income your portfolio generates, neither of these two mREITs will be a good choice for you, despite their huge returns. Worse yet, the share prices of these mREITs have tended to follow their dividends both up and down. In general, investors who spent the dividend were left with less income and less capital. However, that does not mean that these companies are poorly managed.
Investors who reinvested their dividends, focusing on total return, have been well rewarded. Both Annaly and AGNC have delivered total returns similar to those of the S&P 500 index. Notably, the return profiles of both mREITs differ from those of the S&P 500, so they can offer valuable diversification benefits for investors focused on asset allocation.
Which is the best mREIT: Annaly or AGNC?
Assuming you focus on total performance rather than a steady income stream, your choice between Annaly and AGNC will likely come down to one key preference. AGNC is fully focused on owning and managing its portfolio of agency mortgage securities. The term “agency” indicates that these mortgages are guaranteed by Fannie Mae, Freddie Mac, or Ginnie Mae. The key is that there is no credit risk associated with such loans. That said, the value of the portfolio fell 5.6% in the first quarter of 2026. This resulted in a negative economic return of 1.8% for investors, as the $0.50 per share drop in book value more than offset the $0.36 in dividends paid in the quarter. Diversification has its benefits.
Annaly’s business is primarily focused on its agency mortgage securities portfolio, but it also operates two other lines of business. Annaly’s residential lending business oversees a portfolio of non-agency mortgages. It grants loans, securitizes them and manages a loan portfolio. Annaly also operates a mortgage servicing business, which simply charges fees for processing mortgage payments. It’s a fairly consistent cash flow generator and provides some compensation for the increased risk associated with the company’s non-agency mortgage operation. In the first quarter, Annaly’s earnings performance was 1.5%, with a decline in book value of $0.39 per share more than offset by dividends of $0.70.
At the end of the day, investors seeking exposure to agency mortgage-backed securities will likely prefer AGNC Investment. However, investors focused on diversification will likely lean toward Annaly and its more diverse business model.
Make sure you know what you have
Annaly and AGNC both have double-digit yields, but neither of them are particularly reliable dividend stocks. That should keep most dividend investors on the sidelines. However, both have strong total return histories, with AGNC being the more focused business and Annaly the more diversified operation. If you use an asset allocation approach, either of these two mREITs could be a good fit for your portfolio. Your choice between them will likely come down to your diversification preferences.
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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Best High-Yield Financial Stocks: AGNC Investment vs. Annaly Capital was originally published by The Motley Fool
