REITs have loyal followers in dividend investors because they must distribute at least 90% of their taxable income each year to shareholders as dividends. This also introduces volatility in the level of dividend payments, as the rate fluctuates along with the rate of growth in profits of the company. Look at what happened to Annaly (NLY) on Sept. 19: The company announced that the third-quarter dividend to be paid on Oct. 1 would be reduced to 50 cents from 55 cents. With everyone looking for high-yield names, we thought this would be a good time to highlight American Capital Agency (AGNC).

American Capital Agency today gives you a fat yield in a low rate environment. Yes, the business is risky and requires a lot of homework. Let's talk about the upside and downside scenarios for the stock before you plunge in to grab that yield.

Valuation

American Capital Agency now trades without the right to receive a $1.25 dividend declared Sept. 11. The stock currently is trading at $35 vs. its 52-week range of $22.84-$36.77 and 8 times its 2012 P/E multiple vs. Annaly, trading at $17.35 vs. its 52-week range of $17.22-$17.37 and nine times its P/E multiple. More importantly, American Capital Agency stock yields 15% vs. Annaly yielding 12%.

READ FULL ARTICLE HERE...