AGNC & Vici: A Spectacle of Yields

The matter of AGNC, that purveyor of a most dazzling 12.8% yield, is akin to inspecting a brightly colored samovar—tempting to the eye, yet potentially concealing a sediment of troubles. They speak of a ‘high-yield trap,’ a phrase which, frankly, lacks a certain poetic sensibility. One might just as well call a leaky roof ‘a precipitation inconvenience.’ Still, the numbers, if one deigns to glance at them, suggest a fleeting sustainability. A projected EPS of $1.51, sufficient to cover the $1.44 dividend, is a precarious balance, like a stack of pancakes perpetually on the verge of collapse. And seven times forward earnings? A valuation so low, one suspects the accountants have misplaced a decimal point, or perhaps simply succumbed to despair.

AGNC, you see, is a creature of mortgages—a mREIT, they call it. It purchases these obligations, bundles them, and then distributes the interest. A perfectly reasonable scheme, if one overlooks the inherent fragility of the entire edifice. They engage in a curious practice of selling and repurchasing their own mortgage-backed securities, a financial sleight of hand that relies on a delicate dance between short- and long-term interest rates. The Federal Reserve, in its infinite wisdom (or perhaps its boundless capacity for error), was expected to facilitate this dance, but alas, the music has faltered. The MBS yields have remained stubbornly resistant to decline, while borrowing costs have ascended like unruly spirits. The result? AGNC is forced to borrow at exorbitant rates to acquire investments that yield a pittance—a most unseemly predicament.

The dividend, for the moment, appears secure, but one must always remember that even the most imposing fortress can crumble. Should earnings continue their descent, and the payout ratio exceed the sacred 100% threshold, a reduction is inevitable. It is a fate that hangs over all such ventures, like the sword of Damocles suspended by a single horsehair. Therefore, instead of gambling on this precarious enterprise, one might consider Vici Properties, a more… grounded specimen.

The Curious Case of Vici

Equity REITs, unlike their mortgage-backed brethren, deal in the tangible—actual properties, rented to actual tenants. Both types, of course, are compelled to distribute at least 90% of their taxable income as dividends—a bureaucratic requirement that seems designed to encourage profligacy. Vici, however, specializes in a rather peculiar niche: experiential properties—casinos, resorts, and other establishments dedicated to the pursuit of amusement. Its tenants include such titans of the entertainment industry as Caesar’s Entertainment, MGM Resorts, and Penn Entertainment. A veritable pantheon of pleasure.

Vici has mastered the art of securing long-term leases—multi-decade commitments that ensure a steady stream of income. Since its inception in 2018, it has maintained a perfect 100% occupancy rate—a feat of logistical precision that borders on the miraculous. Furthermore, these leases are indexed to the Consumer Price Index, allowing Vici to adjust rents in accordance with the whims of inflation. It is, in essence, a triple-net lease REIT, meaning that its tenants bear the burden of maintenance, insurance, and property taxes. A most agreeable arrangement.

This resilient business model has enabled Vici to increase its dividend every year since its initial public offering. Currently, it yields a respectable 6%, and its adjusted funds from operations (AFFO) per share—a metric favored by those who dabble in such calculations—is expected to rise by 4-5% to $2.36-$2.37 in 2025. This will easily cover the $1.80 dividend per share. The numbers, one must admit, are… pleasing.

At 16 times trailing AFFO per share, Vici still appears reasonably valued. If one seeks a simple REIT that offers a decent yield without the added complexities of mortgages and interest rate fluctuations, Vici, in this humble investor’s estimation, checks all the appropriate boxes. It is a solid, unpretentious enterprise, devoid of the theatrical flourishes that so often characterize the financial world. A quiet dignity, one might say.

2026-02-11 23:52

The Curious Case of Vici

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