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AGNC Investment (NASDAQ: AGNC) has a massive 15.7% dividend yield. In comparison, the 6.5% yield on offer from Bank of Nova Scotia (NYSE: BNS) seems tiny. But if you are trying to find a reliable dividend stock, you should probably go with the lower-yield stock here. This is why Bank of Nova Scotia is a better income option than AGNC Investment.
AGNC Investment just isn't reliable
There's one big reason why dividend-focused investors should stay away from AGNC Investment and its gargantuan yield -- dividend cuts. In the graph below, the orange line represents this mortgage real estate investment trust's (REIT's) quarterly dividend. Notice that it rises sharply at the start of the graph and then falls steadily over the last decade or so. That's not so great if you are trying to live off the income your portfolio generates.
Worse, look at the purple line, which is the stock price. That line generally follows the trend of the dividend. Over the past decade or so, that has meant a fairly steady decline in the value of AGNC Investment's shares. And yet, if you look at the orange line, the dividend yield has remained attractively high throughout, a function of the basic math behind dividend yields. Still, that high yield has long tempted investors despite the (obvious in hindsight) dividend cut risk that income seekers faced here.
In fairness, AGNC Investment is really meant for institutional investors that are focused on asset allocation and total return (which assumes dividends get reinvested, not spent on living expenses). So there's a place for the stock -- it just isn't appropriate for investors who are trying to live off the income their portfolios generate.
But what about Bank of Nova Scotia and its still-impressive 6.5% dividend yield? While not a REIT, it does have a finance angle to it -- and, notably, it makes mortgage loans.
Bank of Nova Scotia is unique
For starters, Bank of Nova Scotia, or Scotiabank as it is more commonly known, has paid a dividend every year since 1833. That's pretty incredible and speaks to both the bank's ability to reward investors and its ability to survive massive financial dislocations, like the Great Depression and the Great Recession. Notably, during the Great Recession, Scotiabank didn't have to cut its dividend like many of the largest U.S. banks.
But what really sets Scotiabank apart is that it primarily operates in Canada, its home market, and in South America. Canadian banking markets are highly regulated, which gives Scotiabank an entrenched industry position at home. That regulation also results in a generally conservative ethos throughout its business. So it has a strong foundation from which to grow.