American Capital Agency: The Power of Dividends

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The year 2013 was one in which mortgage real estate investment trusts (or, mREITs) completely fell apart, and now everyone is underwater in their investment in the sector. At least, that’s what I keep hearing, regardless of when people claim to have bought the stock. One of my favorite mREITs is American Capital Agency (NASDAQ:AGNC). Both are at multi-year lows. Although 2013 has been damaging, I believe the worst is over. Things seem to be improving. Some have claimed that they have been in this name since its inception and are drowning in the red. When considering their performance, can these investors be underwater?

In this article, I will offer a simple analysis to show that most who claim to be underwater on American Capital Agency since buying in 2008 cannot possibly be true. This is attributable to the power of the dividend. The dividends have paid for this stock and then some since 2008. In fact, anyone holding the stock for three years should be up.

There are two approaches to owning high yielding stocks. The first is to simply collect income In this strategy an investor buys a set number of shares in a company and simply collects the dividend and spends the cash as if it were income from any old source. The second approach, and the one to which I generally subscribe, is to reinvest dividends to buy more shares over time (through say a DRIP plan) and compound one’s investment. In this article, I will cover the dividend/income selection approach.

In the case of American Capital Agency, I know many who started getting involved in 2009 and 2010. Some of these folks have insisted they are underwater. The table on the next page has the details of dividends paid by American Capital Agency since its inception.

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