If there is one thing that an income investor will have a hard time resisting, it is a huge dividend yield. That's why AGNC Investment (AGNC -1.17%) will pop up on many income investors' radars since it is offering an absolutely mouthwatering 14% yield. But if you think in decades and not days, you will probably be better off with fellow financial stock Bank of Nova Scotia (BNS -0.27%) or Brookfield Renewable (BEP 0.51%) (BEPC 0.24%), which uses an active portfolio approach to buying clean energy assets. Here's why.
The problem with AGNC Investment's ultra-high yield
When AGNC Investment went public in 2008, its dividend quickly rose. That resulted in the stock rising, too. However, in 2013, the dividend started heading lower. The stock price fell, too. There have been long periods in which the dividend has held steady, but the payment has effectively been going the wrong way for more than a decade.
Given the basic math of dividend yields, however, a falling dividend and a falling stock price will still lead to a high dividend yield. In fact, AGNC Investment's yield has been above 10% for most of its existence despite the dividend cuts. That means it has always looked like a dividend stock, yield-wise, but that hasn't translated into a reliable income stream. The opposite happened; investors who bought it would have ended up with less income and less capital. For most income investors, that would be the polar opposite of what they were hoping for.
AGNC Investment isn't a bad company. In fact, it is a well-respected mortgage real estate investment trust (REIT). The problem is that the mortgage REIT sector is volatile, and dividend cuts are a normal occurrence. Most long-term dividend investors will probably be better off elsewhere.
Bank of Nova Scotia started paying a dividend in 1833
Bank of Nova Scotia hasn't increased its dividend every year, but this giant Canadian bank has paid a dividend since 1833. The dividend has been trending generally higher for decades (the dividend is paid in Canadian dollars, so dividends paid to U.S. shareholders are affected by currency fluctuations). The company pivoted in 2024, working to shift away from less desirable South American operations. Instead, it planned to focus its business around Mexico, the U.S., and Canada. It didn't increase its dividend in 2024.
The company has moved quickly, buying a material stake in KeyCorp (KEY 0.25%) to up its presence in the U.S. market. Add in some additional asset moves, including both sales and partnerships, and management has dramatically reshaped the financial company's portfolio. There is more work to be done, of course, but the company is pleased with the success it has made to date and expects to start increasing the dividend again in 2025. That's a sign of strength for Bank of Nova Scotia and makes its lofty 6.1% yield look extra attractive.
Although Bank of Nova Scotia is still a work in progress, long-term dividend investors willing to take a contrarian position in a reliable dividend payer should give it a deep dive today. If things keep going well for the bank, Wall Street will eventually catch on to the improvements underway.
Brookfield Renewable is an odd clean energy duck
You are most likely to find Brookfield Renewable lumped in with the utility sector, which makes complete sense since it owns and operates clean energy assets. The list of operations here includes just about every clean energy option: hydroelectric, solar, wind, storage, and nuclear. And the portfolio is globally diversified. It is really a one-stop shop if you are trying to add clean energy to your portfolio.
Add in the lofty 6.5% yield for the partnership share class or the 5.2% yield for the corporate shares, and you can see why dividend investors might want to take a look. (The two share classes represent the same entity, and the yield difference is related to the higher demand for corporate shares.) The dividend, meanwhile, has been increased regularly for years. But can you really compare this business to AGNC Investment or Bank of Nova Scotia, which are both financial companies?
The answer is yes, because Brookfield Renewable is run by Brookfield Asset Management (BAM 0.14%), a large Canadian asset manager. This has led Brookfield Renewable to take an active approach with its portfolio, just as an asset manager would. Brookfield Renewable tends to buy clean energy assets while they are cheap, improve them, and then sell them when they reach full valuation. It then repeats the process. This is a major paradigm shift in the utility sector and makes Brookfield Renewable sound a lot more like a financial company.
Compared to the steadily falling dividend from AGNC Investment, Brookfield Renewable's steadily rising dividend and high yield look like a very attractive alternative. You just need to go in with a slightly different mindset and be willing to accept that this clean energy portfolio is constantly changing.
Choose your risks wisely
If you are specifically looking for a mortgage REIT, AGNC Investment is a fine choice. But don't go in thinking the dividend is reliable or will provide a steady income. History suggests just the opposite, and that means the lofty yield represents a bigger risk than it may at first seem. A better option for a relatively high yield is Bank of Nova Scotia, which appears to be back on the front foot as it looks to shift its business model toward growth. Or Brookfield Renewable, which is an interesting amalgam of a clean energy stock and a financial company. Both have high yields and more attractive dividend histories than AGNC Investment.
