AGNC Investment (AGNC 0.87%) is likely to show up on a lot of dividend screens thanks to its massive 14%+ dividend yield. A yield that high can often be a sign of a troubled business, but not in the case of this mortgage real estate investment trust (mREIT). In fact, the mREIT does a fairly good job at achieving its main goal. The problem is that the goal AGNC is working toward may not be the goal you have in mind. Here’s what you need to know.

What does AGNC Investment do?

AGNC Investment operates in a niche of the real estate investment trust sector. Property-owning REITs buy physical assets and lease them out to tenants, which is what you would do if you owned a rental property. It’s a fairly easy business model to wrap your head around. AGNC doesn’t do that; it buys mortgages that have been pooled into bond-like securities. That’s not an easy business model to understand.

Image source: Getty Images.

In many ways, AGNC Investment is more like a mutual fund than a property-owning REIT. In fact, AGNC even provides investors with a metric it calls tangible net book value per share each quarter. This figure is, basically, the value of the mortgage security portfolio on a per-share basis. It is similar to the net asset value (NAV) that a mutual fund reports daily.

This is more important than it may seem, because AGNC Investment’s objective isn’t to generate a reliable income stream. The goal is “favorable long-term stockholder returns with a substantial yield component.” Essentially, the goal is total return, which requires that dividends get reinvested. If you are trying to use the dividends you collect from AGNC to pay for living expenses, you are likely to be let down by this investment.

How has AGNC Investment performed?

Starting with AGNC’s actual objective, the mortgage REIT has done a pretty good job. As the chart below highlights, reinvesting the dividends you receive from AGNC Investment would leave you with a total return that is fairly close to that of the S&P 500 index (^GSPC 0.59%) since the mREIT went public. And since the two graphs don’t match up perfectly, AGNC looks like it could add some important diversification to your portfolio.

AGNC Total Return Level data by YCharts

The problem arises when you look past total return to examine the stock price and dividend history. When you do, you see that AGNC Investment’s dividend is highly volatile. In fact, it has been heading lower for around a decade. The stock price has tracked along with the dividend. The outcome is that investors that spent the dividend would have ended up with less capital and less income. That’s not what most dividend investors are looking for.

AGNC data by YCharts

There’s a caveat here, though. If you add up all of the dividends that have been paid by AGNC over its history and compare that to the drop in the price of the stock, you’ll find some interesting figures. Basically, more dividends have been paid out than value has been lost due to stock price declines. So, from a big-picture perspective, dividend investors have done OK. And still, less income and less capital is not what most dividend investors are likely to be looking for.

AGNC Investment isn’t bad; it is just a specialized investment

AGNC Investment has largely achieved its total return goal. The problem is that most dividend investors don’t have the same goal. Most dividend investors want a dividend and stock price that are stable or growing over time. If you get too caught up in the huge yield AGNC is offering, you might end up owning something that doesn’t align well with your investment goals.