Want $ 100 in monthly dividend income? Invest $ 15,100 in these high yielding stocks
There is no single strategy for making money on Wall Street. Over time we have observed the growth and value investors thrive. But if there has been a near constant, it is the outperformance of dividend-paying stocks over the long term.
Although the data is now nine years old, a report from JP Morgan Asset Management, a division of JPMorgan Chase, highlights the undeniable potential of dividend-paying stocks to enrich people over time.
In 2013, JP Morgan Asset Management compared the performance of public companies that initiated and increased their payments between 1972 and 2012 with those of public companies that did not offer a dividend over the same period. The result? Dividend-paying companies averaged an annual return of 9.5% over four decades, which far exceeded the meager 1.6% annual return of non-dividend-paying stocks over 40 years.
Since dividend-paying stocks are generally profitable on a recurring basis, have a clear long-term outlook, and are time-tested, they are often a good place for investors to put their money to work in any environment. economic.
The big dilemma facing income investors is how to safely maximize the return they will receive while minimizing the risk. Since risk and reward tend to be correlated when returns hit 4% and above, this is easier said than done.
The good news is that there is are High-quality dividend-paying stocks that have been proven to work for their shareholders. In fact, some of these income stocks offer a monthly payment. If you’re the impatient type who demands the regular gratification of dividend payments, the following trio of high yielding stocks might be the answer. With an average return of 7.97%, an investment of $ 15,100, evenly split among these stocks, would produce $ 100 in monthly dividends.
AGNC Investment Corp: yield of 8.73%
For income seekers who want to maximize their monthly payment, the Mortgage Real Estate Investment Trust (REIT) AGNC investment company. (NASDAQ: AGNC) seems to be the first choice.
Mortgage REITs like AGNC borrow money at short-term lending rates and use that capital to buy higher-yielding long-term assets, such as mortgage-backed securities (MBS). The goal of mortgage REITs is to maximize their net interest margin, which describes the difference between the average return on long-term assets minus the average borrowing rate.
The great thing about mortgage REITs like AGNC is that there aren’t many surprises. These are companies that fluctuate with interest rates, and their movements are often very predictable. Typically, a flattening of the yield curve (a situation in which the yield difference between short and long-term Treasury bonds narrows) and / or a Federal Reserve that drastically changes its monetary policy are obstacles for companies like AGNC. Conversely, a yield curve that steepens with slow monetary policy changes tends to be positive for the mortgage REIT industry.
Looking back decades, the early years of an economic recovery almost exclusively reflect a steepening of the yield curve and generally accommodative monetary policy. In other words, it’s time for AGNC to shine.
Another thing income investors will appreciate is the company’s emphasis on agency MBS. An agency asset is guaranteed by the federal government in the event of default. As of June 30, $ 85.5 billion of the company’s $ 87.5 billion investment portfolio consisted of agency securities. While this additional protection weighs on long-term returns, it also allows the company to leverage its investments to increase its profit potential.
AGNC has averaged a double-digit dividend yield over 11 of the past 12 years, making it a top income stock among monthly dividend payers.
PennantPark variable rate capital: return of 8.57%
For something completely under the radar, income investors looking for high yielding monthly dividends should consider buying Floating rate capital PennantPark (NASDAQ: PFLT). PennantPark spends $ 0.095 per month, which is a payment it has held since March 2015.
PennantPark is a business development company that focuses primarily on senior secured debt and, to a lesser extent, investments in common stocks, such as preferred stocks. However, instead of providing financing to well-known companies, PennantPark is primarily a senior holder in smaller capitalization private companies that might otherwise not have the financing options available from banks that larger companies may receive. .
Why focus on middle market companies? The simple answer is yield. With fewer funding options available, PennantPark is able to earn average debt yields above 7%, which is fueling the company’s supercharged dividend.
In addition, virtually all of PennantPark’s businesses meet their obligations. As of June, the company’s investment portfolio consisted of 100 companies, only two of which were on non-accounting (i.e. 90 days behind on their payments). This is a small percentage of its portfolio given that the company focuses on small cap (i.e. less established) companies.
Perhaps the best aspect of PennantPark Floating Rate Capital is, as the name suggests, its variable rate loans. At the end of June, 98% of its debt portfolio was made up of variable rate instruments. With interest rates having no choice but to increase, PennantPark’s lenders will be paying the company more in the years to come.
LTC properties: 6.62% yield
A third monthly dividend stock that can deliver long-lasting disproportionate payouts is the nursing and senior care REIT. LTC Properties (NYSE: LTC). LTC has the “lowest” yield on this list at 6.6%. But to put that in perspective, LTC’s performance is almost five times that of the broad base. S&P 500.
Without watering down, LTC and its peers have had a tough 2020 and started the current year. The coronavirus pandemic has reduced admissions to skilled nursing facilities and senior housing, which in turn has resulted in some level of rent defaults from LTC’s rental base. In particular, Senior Care Centers, a key tenant of LTC, filed for bankruptcy and failed to make its second quarter rent payments.
Yet despite these issues, LTC’s dividend was not reduced and its overall business quickly rebounded. Excluding Senior Care and Senior Lifestyle, the company received nearly 94% of its income from rent and mortgage interest in the second quarter. With vaccination rates on the rise, especially among the elderly population and skilled workers in health care facilities, the prospect of returning to business as usual is somewhat in sight.
In addition, the diversity of LTC Properties has been a boost. The company holds first mortgages on nearly 180 properties in 27 states and, most importantly, 30 lease operators. With just four of its 30 operators renting more than nine properties, in June, LTC ensured that its business was not shattered by the struggles of a single operator.
Finally, the company should also benefit enormously from America’s aging process. As baby boomers age, the demand for senior housing and skilled nursing care is bound to increase, which will put the proverbial ball and rental pricing power into LTC’s camp.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.