AGNC Investment (AGNC -0.46%) and Federal Realty (FRT -0.93%) are real estate investment trusts (REITs) that currently offer dividends well above the market average of 1.2%.

Despite those similarities, these companies couldn’t be more different. Here’s a look at which REIT is the better dividend stock to buy.

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A monster monthly income stream

AGNC Investment is a mortgage REIT. It invests in Agency residential mortgage-backed securities (MBSes), pools of mortgages guaranteed against credit losses by Fannie Mae, Freddie Mac, and Ginnie Mae. AGNC invests in MBSes on a leveraged basis, primarily through repurchase agreements.

This leveraged investment strategy can be very lucrative. AGNC currently earns a return on equity of 18% to 20% on new investments. That high return enables the REIT to pay a very generous monthly dividend, which currently yields an impressive 14.7%.

As long as AGNC’s investment returns are at or above its cost of capital (operating expenses and dividend payments), it can continue paying its monster monthly dividend. The mortgage REIT has maintained its current monthly dividend rate for five straight years.

However, if its returns slip below its costs, the REIT might need to reduce its dividend payment. It has had to do that several times in the past.

AGNC also routinely issues new shares to grow its portfolio. This approach has impacted its stock price and dividend payment, with both having declined considerably since its IPO in 2008. However, the company’s strategy has also enabled it to generate a strong total return of 573%, or 11.7% annualized, largely due to its substantial monthly dividends.

A consistent dividend grower

Federal Realty is a retail REIT. It invests in open-air shopping and mixed-use properties. It focuses on owning high-quality properties in top suburban areas that are densely populated with high-income earners. These areas are highly attractive to retailers, which keeps occupancy rates high and drives strong rental growth rates.

The REIT’s high-quality portfolio has generated resilient and steadily rising rental income. That has enabled Federal Realty to consistently increase its dividend, which currently yields 4.5%. It has raised its payment for 58 consecutive years, the longest streak in the REIT sector. It’s the only REIT and one of only 56 companies to have reached Dividend King status, with 50 or more consecutive years of dividend increases.

Federal Realty’s growing income and dividend have enabled the REIT to grow shareholder value over the years. Its stock price is up over 350% while its total return is more than 2,590% (9.7% annualized).

The REIT isn’t without risk. The retail sector is facing headwinds from e-commerce, inflation, and a slowing economy, which can impact retailers’ ability to pay rent. Federal Realty is working to mitigate that impact by investing capital to improve its properties and attract the highest-quality retailers as tenants. It’s also spending money to add residential units and office space to its properties, aiming to attract more traffic and diversify its revenue streams. The REIT also routinely recycles capital by selling lower-quality properties to fund the acquisition of higher-quality locations with better long-term growth prospects. These disciplined investments position Federal Realty to continue growing the value of each share and its dividend payment.

High income versus steady growth

AGNC Investment and Federal Realty offer very different options. AGNC pays a monster monthly dividend, making it appealing for those seeking a lucrative income stream. However, it carries more risk, including the possibility of dividend cuts and likely share dilution.

Federal Realty, on the other hand, offers an attractive and steadily growing dividend backed by a high-quality portfolio of retail properties. The company’s investments to grow shareholder value could enable it to produce higher total returns compared to AGNC over the long term. These factors make Federal the better dividend stock to buy for those seeking a sustainable and steadily rising income stream, as well as higher total return potential, all from a company with a lower risk profile.