AGNC Investment Stock Is Interesting, but Here's What I'd Buy Instead

AGNC Investment's (NASDAQ: AGNC) dividend yield has been above 10% for most of its existence. That, however, doesn't mean it is a reliable dividend stock. In fact, it has been exactly the opposite, given the volatility of the dividend over time and the long downward trend in the dividend over the past decade or so.

If you are attracted to AGNC Investment's huge 12.6% yield, thinking that you have found a reliable passive income stock, you'll likely be better off with Realty Income (NYSE: O) and its more modest 4.9% yield. Here's why.

AGNC Investment is built for total return

When AGNC Investment discusses its performance as a business, it highlights total return, which requires reinvesting dividends. In fact, based on total return, this real estate investment trust (REIT) has outperformed the S&P 500 (SNPINDEX: ^GSPC) since its May 2008 initial public offering (IPO). That's an impressive achievement, but it doesn't make AGNC Investment a reliable dividend stock.

If you used the dividends to pay for living expenses rather than reinvesting them, you would have ended up with less income and less capital. That's not the ideal outcome for dividend investors looking to use their dividends to supplement Social Security in retirement.

Realty Income is reliable

Realty Income, by contrast, has increased its dividend annually for three decades and counting. The annualized dividend growth rate over that time was roughly 4.2%, which is a touch higher than the long-term growth rate of inflation. That means that the buying power of Realty Income's dividend has increased over time, albeit slowly.

Realty Income's yield is much lower, but the income stream you'll generate is clearly more reliable. That said, a 4.9% yield is nothing to sneeze at. The S&P 500 index is yielding a scant 1.1% and the average REIT's yield is 3.8%. Sure, Realty Income's yield is low relative to AGNC Investment's shockingly high yield, but Realty Income is still offering an attractive income stream relative to other options.

Realty Income is boring by design

The reason Realty Income is so attractive is that it is built from the ground up to be a reliable dividend stock. It has a diversified portfolio and conservative finances. And while it is a very large REIT, which likely means slow growth will be the norm, it has been expanding its reach into new areas, such as asset management and debt investments. If you need a reliable income stream to help you pay your bills, I'd suggest Realty Income over AGNC Investment every day of the week.

Reuben Gregg Brewer has positions in Realty Income. The Motley Fool has positions in and recommends Realty Income. The Motley Fool has a disclosure policy.