If you have $1,000 to invest and are looking for high-yield stocks, you might be tempted to try to maximize income. You could do that with the purchase of a stock like AGNC Investment(NASDAQ: AGNC), which has a huge 16%+ dividend yield. Here’s why it would be a no-brainer to buy Toronto-Dominion Bank(NYSE: TD) instead, despite a much lower yield.
AGNC Investment is a mortgage real estate investment trust (REIT), a fairly complicated niche of the REIT sector. The company buys mortgages that have been rolled up into bond-like securities. The goal is to make the difference between the interest it collects on the securities it buys and its operating costs. The REIT uses leverage in an attempt to enhance returns, and that huge 16%+ yield isn’t actually as attractive as it seems.
Image source: Getty Images.
As the chart below highlights, AGNC Investment’s dividend has been in decline for years after a brief jump following its initial public offering (IPO). The share price has tracked along with the dividend, jumping after the IPO and then steadily declining.
Technically speaking, investors have made out OK because AGNC Investment has paid out more in dividends than it has lost in share price. But that’s a nuanced view of things. Most dividend investors are looking to own stocks that have stable to growing dividends and stable to growing stock prices. Reaching for yield with AGNC Investment is likely to leave you with a bad taste in your mouth if you need income to pay for living expenses.
Toronto-Dominion Bank, or TD Bank for short, is a much more reliable dividend stock. Yes, the 4.5% yield is much lower, but the dividend hasn’t been cut regularly, even during hard times. For example, TD Bank didn’t have to reduce its dividend during the Great Recession like many of its U.S. peers. And it increased the dividend at the start of 2025, despite facing some company-specific troubles.
While TD Bank’s dividend yield is lower than that of AGNC Investment, it is actually high in other ways. For starters, it’s high relative to the 1.3% yield of the S&P 500 index (SNPINDEX: ^GSPC). It is high relative to the finance industry’s 2.7%, and it is historically high for TD Bank. In fact, the last time the dividend was as high as it is today was during the Great Recession and the coronavirus pandemic’s height. In other words, TD Bank is offering an attractive yield.
The dividend is so high because TD Bank’s U.S. business has weak internal controls against money laundering and it was used for that purpose. U.S. regulators were not pleased and have barred the company from growing in the U.S. market until they’re satisfied that the internal control weakness is resolved. TD Bank’s large and diversified Canadian business is still doing just fine, but the U.S. division was expected to be the bank’s growth engine. It could take a few years to resolve this issue, and investors have shunned the stock because of this.
Only TD Bank remains a strong financial institution with little risk of a dividend cut. In fact, the bank reported second-quarter 2025 earnings that beat Wall Street expectations. In other words, the business is managing well even in the face of adversity. It is, at the end of the day, a relatively low-risk and still high-yield turnaround play.
If you think you’ve found a dividend stock that will provide you with a reliable income stream with AGNC Investment, well, history suggests you could be in for a very bad surprise. If you temper your income expectations and buy TD Bank right now, however, you’ll likely be setting yourself up for years of reliable dividends and a stock price recovery as it works through its company-specific headwinds.
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Reuben Gregg Brewer has positions in Toronto-Dominion Bank. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
