Then the pros of putting AGNC into an IRA seem great....you collect the huge dividend tax-free, forever.
I hate to be one to throw cold water on such enthusiasm, but have you considered the possibility that the "forever" dividend may not be sustainable? That their business model is built on some current conditions that may not persist? That AGNC might actually, at some future time, CUT the dividend?
Their track record of dividends (in fact their whole history as an entity) extends back exactly 3 years. They were actually reduced in March 2009 from that paid in the prior quarter; they were reduced again in September 2009 from that paid in the prior quarter.
I know next to nothing about agency pass-through securities and collateralized mortgage obligations.
However, I do know that (according to Yahoo! Finance) they carry over $35 billion in long term debt on their balance sheet. I also am fairly certain (but cannot prove) that these huge dividends are primarily a product of two or three things that characterize the present economic environment in the U.S.:
1. Exceptionally low interest rates on U.S. Treasury debt, not seen in the U.S. for generations. e.g., a bubble in Treasuries.
2. A housing market that is a total shambles, with untold millions of homeowners underwater on their homes, many with losses of over 50% on their cost.
3. The essentially bankrupt Freddie and Fannie, kept alive only by the good graces of a Congress whose performance, quality, and character I leave up to you to describe.
You may recall that preferred stock and bonds issued by General Motors....who all the sages and talking heads confidently predicted would never actually go BANKRUPT.....carried very juicy and mouth-watering yields of 12% and above, just before they collapsed. It wasn't that long ago.
To summarize, anything with a current annual yield of over 19% seems to me to be screaming ***DANGER***.
***SELL***. (Regardless of the price paid).
I feel pretty comfortable predicting that within a year or two, AGNC will be either:
1. Trading below $10/share
OR
2. Carry a dividend (if any) on the then-market price of under 5%
OR
3. Both. |
