At first glance, AGNC Investment (AGNC 1.27%) looks like a high-yield story, given its huge 14%+ dividend yield. It really isn’t, but you have to dig into the story a little bit to understand why. And, perhaps just as important, the value that management likes to highlight from its dividend payments isn’t as great as you might think. Here’s what you need to know about the past 10 years and what it suggests about the next 10 years.

This AGNC graph tells a troubling story

To get a couple of perfunctory issues out of the way, AGNC is a mortgage real estate investment trust (REIT). That’s a somewhat unique corner of the REIT sector that is far more complex than a typical property-owning REIT. Essentially, AGNC buys mortgages that have been pooled into bond-like securities, which makes it more like a mortgage-focused mutual fund than a REIT. But the graph below will explain why most income investors probably won’t like AGNC.

AGNC data by YCharts

The key takeaways are simple when you break this somewhat complex graph down to its component parts. For starters, AGNC’s dividend yield (the orange line) has always been high, usually 10% or more. But the dividend itself (the blue line) has fallen steadily over the past decade. And the stock price (the purple line) has tracked the dividend lower, which is why the dividend yield has remained high throughout the past decade.

If you are a dividend investor looking to live off of the income your portfolio generates, owning AGNC would have resulted in a terrible outcome for you. The next decade could be different, but is it worth the risk?

Those dividends came from somewhere

Normally that first graph is enough to dissuade most investors from buying AGNC. But in the first-quarter 2024 earnings release the company noted that “…since its May 2008 initial public offering through the first quarter of 2024, the Company has declared a total of $13.1 billion in common stock dividends, or $47.56 per common share.” Fair enough, the company has paid a lot of dividends, but it isn’t operating a business that can increase in value over time. What it owns and actively trades are mortgage bonds.

For example, over the past decade the company’s book value per share has fallen from $23.93 at the end of 2013 to just $8.84 per share at the end of the first quarter of 2024. That was actually up from $8.70 at the end of 2023. In other words, over the past decade the company has destroyed around $15 per share in book value, which in this case is essentially the value of its mortgage bond portfolio.

So while the REIT can claim to have paid out a lot of dividends, those payments came with a material cost in the form of book value declines. And as the book value shrinks, it gets harder and harder for the company to grow its portfolio, since there is less capital to be invested. That, in turn, makes it harder to maintain the dividend since there is less capital invested in income-producing mortgage securities. To gain back that lost $15 in book value, the mortgage portfolio would have to nearly double in value, which seems highly unlikely to occur even over as long a time span as a decade.

So, given the history and with a greatly diminished book value per share, it seems likely that AGNC’s future will not be good for investors looking to live off of the income they generate from their portfolios. It is probably better to expect further declines in book value over the next decade as the massive dividend payments continue to drain the REIT of cash that might otherwise go toward buying more mortgage securities and growing its book value.

Total return is the way to look at AGNC

AGNC isn’t inherently a bad investment. It just isn’t one that most income-focused investors should be looking at. That becomes very clear when you consider total return, which assumes dividend reinvestment. Over the past decade the stock has fallen nearly 60%, but the total return, thanks to the reinvestment of the huge yield, is up roughly 30%. While that shows the power of dividend reinvestment, it also highlights that using those dividends to support your spending needs would have been a terrible decision. That trend isn’t likely to change materially over the next decade given how much smaller AGNC, looking at book value, is at this point.