AGNC's 2025 Book Value Surge Masks Unsustainable Dividends; Preferreds Highlighted as Alternative

What happened

AGNC Investment Corp. reported substantial book value gains in 2025, primarily driven by tightening agency MBS spreads that boosted unrealized mark-to-market valuations. However, these gains are largely one-time and non-recurring, misleadingly flattering earnings multiples and obscuring the underlying weakness in core income. Net spread and dollar-roll income per share is barely covering the current $0.12 monthly dividend, with coverage falling to approximately 1.0x in Q3 2025, indicating no earnings cushion for sustainability. Management's high leverage at 7.6x and lack of spread hedging expose the dividend to significant risk from future spread widening, which could erode tangible book value by ~25% per a 50 bps move. While the common stock appears overvalued and risky, the article suggests AGNC's preferred securities might offer a more stable income alternative, though they remain tied to the company's fragile financial structure.

Implication

The reliance on unrealized gains for book value appreciation signals deteriorating core earnings power, making the current dividend vulnerable to cuts as recurring income lags. With net spread and dollar-roll income per share only marginally covering payouts, any adverse move in agency MBS spreads or funding costs could quickly force a dividend reduction, impacting total returns. AGNC's high leverage amplifies this risk, as demonstrated by management's sensitivity tables where a 50 bps spread move swings tangible book value by ~24.5%, leaving little buffer for downside scenarios. The stock's premium valuation to book value exacerbates the risk-reward imbalance, aligning with the DeepValue report's 'POTENTIAL SELL' rating and suggesting limited upside but material downside. For yield-seeking investors, AGNC's preferred stock may provide a safer income stream due to seniority in capital structure, but it still carries exposure to the company's overall leverage and spread volatility, requiring careful assessment.

Thesis delta

The new article reinforces the DeepValue report's cautious thesis that AGNC common stock is overvalued with unsustainable dividends, but introduces a nuance: preferred securities might be a relatively better option for income investors. This does not alter the core recommendation to sell or avoid common shares, as both sources agree on the high risks from leverage and spread sensitivity. However, it adds a layer for portfolio construction, suggesting that if exposure is necessary, preferreds could mitigate some dividend instability while still acknowledging overall company fragility.