These Yields Beat Inflation — By a Mile - 8/16

Company: AGNC Investment Corp. (SYM: AGNC)
Yield: 14.93%

AGNC Investment Corp. is a mortgage real estate investment trust (mREIT) that focuses on residential mortgage-backed securities (RMBS) where principal and interest payments are guaranteed by either the U.S. government or a government agency such as Fannie Mae, Freddie Mac, or Ginnie Mae.

That guarantee is important — it means AGNC’s portfolio carries significantly lower credit risk compared to typical mortgage investments. While interest rate fluctuations can impact earnings, the underlying mortgages themselves have minimal default risk.

Why the yield is so high:
AGNC’s business model is heavily leveraged, borrowing at short-term rates and investing in longer-term mortgage securities to capture the spread. This can lead to outsized returns in stable interest rate environments. With the market increasingly expecting the Federal Reserve to cut rates later this year, AGNC could see improved net interest margins — supporting both earnings and dividend sustainability.

AGNC recently declared a $0.12 monthly dividend, payable September 10 to shareholders of record as of August 29. For investors looking for predictable income, AGNC’s monthly payout schedule is a big plus, turning dividends into a more consistent cash flow stream rather than waiting for quarterly checks.

Key risk: mREITs can be sensitive to interest rate volatility. If rates were to rise unexpectedly, AGNC’s spreads could narrow and earnings could dip. However, with rate cuts back on the table, the near-term outlook looks favorable.

Company: Ellington Financial (SYM: EFC)
Yield: 11.3%

Ellington Financial operates in a diversified niche, investing across residential and commercial mortgage loans, mortgage-backed securities, consumer loans, collateralized loan obligations (CLOs), and other asset-backed securities. It also invests in loan origination companies, giving it exposure to income at multiple points in the lending cycle.

This broad approach helps spread risk across different asset types and market conditions, giving EFC flexibility to allocate capital where it sees the best opportunities.

Why investors like EFC right now:
Ellington has been disciplined in managing its leverage and maintaining strong credit standards, which has helped it preserve its dividend even during periods of market stress. It recently declared a $0.13 monthly dividend, payable September 30 to shareholders of record as of August.

Like AGNC, Ellington benefits from a falling interest rate environment. Lower funding costs mean higher potential spreads, and the Fed’s pivot toward easing could be a tailwind heading into 2025.

Key risk: While diversified, Ellington’s portfolio does include riskier credit exposure than a pure agency-backed mREIT. That means performance can be impacted if the economy weakens sharply and loan defaults rise. Still, the current economic backdrop — with cooling inflation and potential rate cuts — appears supportive.