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There's nothing inherently wrong with AGNC Investment (NASDAQ: AGNC), but it isn't a simple company to understand. So if you see the real estate investment trust's (REIT's) huge 14.7% yield and think you've found an ideal passive income stock, step back and take a deep breath. AGNC Investment isn't really for you. Here's why.

A few charts tell the AGNC Investment income story

Before getting into the details of what AGNC Investment does, it will help to set the stage with a few graphs. Below is a graph showing AGNC Investment's historical dividend yield trends. Notice that the yield has always been quite high. In fact, through most of the mortgage REIT's history it has been above 10%. In other words, it has long shown up on the radar of yield-seeking investors.

This is where the next graphic comes into play. Below is AGNC Investment's quarterly dividend overlaid on the yield. Notice that the dividend jumped higher early on, but since around 2010 or so it has largely been heading lower. This should raise an eyebrow or two, because dividend yield is a fairly simple equation in which you divide the annualized dividend by the stock price.

There's only one way that the yield can stay high if the dividend is trending lower -- the stock has to be falling along with the dividend. And that's exactly what the next graph shows has happened. So, if you bought AGNC Investment with the idea of generating a reliable passive income stream, likely spending the dividend on living expenses, you would have ended up with less income and less capital. This is not the kind of story a dividend investor wants to hear.

AGNC data by YCharts

AGNC Investment isn't all bad

Remember that AGNC Investment is a mortgage REIT. That's a specialized niche of the real estate market. Effectively, AGNC Investment buys mortgages that have been pooled together into bond-like securities. It earns the difference between the yield on the securities it owns and the costs it incurs to invest, which often include interest costs because of the use of leverage in an effort to enhance returns. There are a lot of moving parts here.

Since the value of AGNC Investment is basically the value of its portfolio, investors should really consider it more like a mutual fund than a REIT. The use of leverage can enhance returns, but it can also increase losses. Notably, the leverage employed is often backed by the mortgage securities in the portfolio, which in really hard times can lead to margin calls. Even the fear of a margin call can force a company like AGNC Investment to make investment decisions that it would otherwise prefer to avoid (such as selling assets in a downturn).

Then there's the mortgage market itself, noting that the bond-like securities that AGNC Investment buys are traded all day. Interest rate changes, property market dynamics, and mortgage repayment trends, among other things, can all impact the value of its portfolio. These things are hard to predict and difficult to track for small investors. But here's the truly interesting chart:

AGNC data by YCharts

Notice that the price-only performance of AGNC Investment is deeply negative, but the total return is strongly positive. Total return assumes dividend reinvestment. If you used the dividend to pay for living expenses, AGNC Investment has been a bad option. But if you had reinvested dividends it would have been a much better selection.

In the end, AGNC Investment is a way to gain exposure to mortgage securities for investors who use an asset allocation approach and look at total return when tracking performance. That's not what most small dividend investors will be doing.

Who should buy AGNC Investment

When all is said and done, AGNC Investment isn't going to be a good fit for passive income investors who are trying to create a reliable income stream. It is meant for larger investors, such as insurance companies and pension funds, that are using an asset allocation approach and track performance via total return.

AGNC Investment isn't a bad dividend stock; it is just a specialized investment. If you are looking for reliable dividend-paying REITs to build an income stream, you might want to consider a Dividend King like Federal Realty (NYSE: FRT) or net lease REIT giant Realty Income (NYSE: O).

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

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.