Being a retiree, or when retirement is just a few years away, requires a different investment strategy than being a younger worker with decades until retirement. And most who are retired or are soon to retire know that Social Security is now just five years away from where insolvency could cut Social Security benefits by more than 20%. This now means that safety of principal and income will be mandatory objectives for millions of retirees.
Oggonomics understands how high-yield dividends and high interest payments can greatly supplement the retirement lifestyle. Dividends are of course the income side of the equation, but what about the principal protection side of the equation?
Mortgage REITS have traditionally been one of the go-to investment sectors for retirees seeking passive high income from dividends. They can generate dividend yields of 10% and higher, even for the largest high-quality teams out there. As REITs are required by governing law to distribute more than 90% of their earnings via dividends, this can lead to an erosion of capital over time. So, what are retirees supposed to do?
Understanding the metrics that actually govern investment income and principal protection are two paramount issues to prevent running out of money in retirement. That’s definitely true for the “mREIT” sector, particularly when it comes to dividend yields of 10% or more.
Many mortgage REITS also have preferred shares that have to be weighed for how large their issues are against the common shares. This review covers Annaly and AGNC as the two largest mREITS, and it pertains to their common shares only with no discussion about share issuances and preferred shares.
UNDERSTANDING RISKS & BENEFITS
Oggonomics wanted to address a few of the primary concerns and issues that retirees should consider when they are looking for dividend yields of 10% and higher. After all, don’t ignore a key mantra of Oggonomics — “If your plan is just to depend on the government to take care of you later in life, you probably will not like how the government takes care of you.”
Do mREITS use leverage? Is their income predictable for long-term dividend coverage, or is it rate-sensitive? Does credit risk matter in the new world? Does Wall Street itself actually “like” high-yield mREITs?
When looking at specific REITs, Oggonomics decided to focus on Annaly Capital Management, Inc. (NLY) and AGNC Investment Corp. (AGNC). These are the two largest mREITs of their type, with a combined market cap of nearly $30 billion. Both screen with 13% dividend yields as well. And both are considered to have top-notch management teams that run their investment portfolios.
One easy task that investors can do is to look at “risk factors” to see the risks outlined in the dividend strategy. AGNC’s “risk factors” was 15 or 16 pages. While it may put your kids (and maybe you) to sleep, a lot of factors are outlined.
Leverage can be deadly when investors make the wrong bets and assumptions on rates. Using leverage can amplify gains, but that’s also true for losses. If a mortgage REIT has to reinvest into MBS after a wave of refinancing, it is assumed they will be collecting lower interest payments (unless they add more leverage).
Dividend coverage (payout ratios) in REITs can be tricky, and sometimes those same eye-popping yields of 10% and higher are not always fully covered by earnings or funds from operations. Distributions/Dividends are not generally considered steady like a typical dividend stock, even if the REIT tries to keep a stable dividend profile. While all REITs should have a payout ratio of more than 90%, some REITs distribute even greater portions of their earnings some even over 100% of income. The reality is that high-yield mortgage generally offer eye-popping dividend yields.
MBS’ Credit Risk can vary wildly in mortgage-REITs. Owning agency MBS overall tends to have minimal credit risk versus commercial real estate loans because the housing loans come with an implied (but not absolute) government guarantee. The REITs that own non-agency MBS or hybrid mortgage REITs are implied to have much greater credit exposure than Annaly or AGNC.
Investors should also take note that Wall Street analysts do not issue many research reports even in the largest mortgage REITs. And when they do issue ratings and targets, they are very rarely aggressive price targets.
One serious risk for retirees is Book Value Erosion due to principal protection and income raking higher than growth. This is a characteristic that has been seen in both of the top-2 players (see below). As mortgage REITs pay out dividends, they are actually paying out their capital that could have otherwise been reinvested if they were in a traditional operating structure outside of REITs.
MBS REITs generally use shorter-term borrowing and hold longer-dated mortgage-backed securities. This puts them at risk when interest rates rise or fall rapidly. After all, expected maturities (average life) can extend out in rising rates or become much shorter due to prepayments and refinancing if rates come down rapidly. Those prepayments (and refi efforts) can eliminate higher yielding mortgages from their investments.
ANNALY VERSUS AGNC
Annaly Capital Management, Inc. (NLY) is worth $16.8 billion based on its $22.90 share price, and its 52-week range is $18.64 to $24.52. A recent quarterly dividend hike to $0.75 per share is still lower than its quarterly $0.88 per share payout back in 2022. It implies a dividend yield of 13.1% if the dividend were to remain flat in perpetuity. That also means its annualized dividend payments are right at $2.2 billion for the common shares alone. Annaly’s book value per common share of $20.21 at the end of 2025 had dropped to $19.82 per share by the end of Q1-2026.
AGNC Investment Corp. (AGNC) is worth $12.5 billion based on its $10.90 share price. Its dividend of $0.12 per share is paid out monthly has been static since 2020. That is still lower than its prior $0.16 per share payout back in 2020 and lower than the $0.18 payout prior to 2020. It implies a dividend yield of 13.2% if the dividend were to remain flat in perpetuity. That also means its annualized dividend payments are right at $1.64 billion. AGNC’s book value per common share of $8.88 at the end of 2025 had dropped to $8.38 per share by the end of Q1-2026. AGNC’s 52-week trading range is $9.08 to $12.19.
What would AI tell retirees looking at specific REITs versus each other? Several key issues were highlighted by Claude regarding AGNC (and some for Annaly as well):
- AGNC’s tangible net book value per share fell 5.6% in Q1-2026 to $8.38, driven partly by a $0.50 decline in tangible book value and $0.36 in dividends declared.
- Adding that up sounds like total return was actually negative even after collecting the dividend.
- AGNC ran a 7.4x tangible net book value “at risk” leverage ratio as of Q1-2026.
- AGNC’s constant prepayment rate nearly doubled to 13.2% in Q1 2026 from 7% a year earlier, contributing to a 4.5% decline in net spread and dollar roll income.
- AGNC’s payout ratio is expected to run around 91% of earnings for 2026 — better than prior years, but a reminder that distributions can get squeezed if spread income deteriorates further.
- Over 88% of Annaly’s portfolio and 97% of AGNC’s portfolio sit in agency-backed MBS.
As Wall Street does not issue as many research reports in the mREIT sector, here are the analyst report summaries seen over the last 90 days in AGNC/NLY:
- 4/24 AGNC maintain Neutral, PT to $11 from $10.50 at UBS
- 4/16 AGNC maintained Overweight, PT to $11 from $12 at JPMorgan
- 4/02 AGNC maintained Overweight, PT to $10.50 from $12.50 at Piper Sandler
- 6/03 NLY maintained Outperform with $25 PT at RBC
- 4/24 NLY maintained Neutral, PT to $23 from $22.50 at UBS
- 4/23 NLY reiterated Overweight, PT to $24 from $23 at JPMorgan
SPECIAL NOTES
Retirees and those close to retirement do use mREITs as part of their income strategy. These may not have any absolute principal protection characteristics, but yields over 10% often allow many investors to lean on “greed” (income) over “fear” (book value erosion). There is no such thing as a free-lunch when it comes to investing. mREIT owners should know this by now, and if they have invested in the sector for years it has become a reasonable risk worth taking.
Both AGNC and NLY show direct total return calculators on their investor relations sites. Annaly showed that a $10,000 investment over 10 years with dividends reinvested would have grown by 81% as of this time — with 125% from dividends and -48% share price movement. AGNC’s 10-year total return compares at 94.5%. These might not be returns similar to what has been seen in technology leaders, but that’s not what retirees were banking on either.
All citations and references have been assigned to firms that made the calls and outlooks. Oggonomics does not have any formal ratings and price targets on individual companies and stocks, including these mREITs covered.
