Trump Tariff Plan to Increase Mortgage Rates: How to Play AGNC Stock?

Core Viewpoint - AGNC Investment Corp.'s performance is heavily influenced by mortgage rates, which are currently stable around 7%, but may change due to proposed tariffs by the Trump administration [1][2]. Mortgage Rate Influences - The Trump administration's tariff plans, including a 25% duty on steel and aluminum and increased levies on Chinese goods, are expected to impact mortgage rates [2][3]. - Higher tariffs could lead to increased costs for home-building materials, raising construction costs and home prices, which may prompt the Federal Reserve to maintain or raise interest rates, subsequently increasing mortgage rates [3]. Challenges for AGNC - Prolonged high mortgage rates could reduce demand for mortgage refinances, limiting the availability of new agency mortgage-backed securities (MBS) for AGNC, potentially stalling portfolio growth and decreasing the value of current MBS holdings [4]. Dividend and Financial Profile - AGNC has a strong dividend policy with a current yield of 13.8%, significantly higher than the industry average of 10.7%, and a payout ratio of 75% [6]. - The company has a share repurchase plan allowing it to buy back up to $1 billion of common stock through December 31, 2026, contingent on the repurchase price being lower than the tangible net book value [8]. Agency MBS Outlook - AGNC focuses on agency MBS, which are backed by U.S. government agencies, positioning it favorably in the market [9]. - The outlook for agency MBS has improved, with management noting potential benefits from a steepening yield curve and reduced rate volatility [10]. Performance Metrics - AGNC generated a positive economic return of 13.2% in 2024, attributed to its monthly dividend and favorable market conditions [11]. - The stock trades at a forward P/E multiple of 6.56X, below the industry average of 8.54X, indicating it is undervalued compared to peers [12][14]. Stock Performance - Despite mortgage market volatility, AGNC shares have increased by 27.9% over the past year, outperforming the industry's growth rate of 13.3% [19]. - The current discounted valuation suggests that investors should consider holding the stock while monitoring market changes [21].