Investors who are in or nearing their retirement years know the need for reliable income moves to the top of the priority list. That makes investing in dividend stocks a logical choice. Most dividend stocks pay dividends on a quarterly basis. However, for individuals who lack an income stream from a job, quarterly dividends of any size create an uneven income stream. That can be difficult in times of economic volatility, and particularly when facing rising inflation.
One solution for these investors is to purchase a special class of dividend stocks that pay dividends monthly. Monthly dividend income is a way to create predictable cash flow. And investors also get access to stocks that have a high dividend yield, sometimes in excess of 10%. That's nearly 10x the 1.6% average dividend yield of stocks in the S&P 500. And because of these company's business models, these yields are sustainable.
In this special presentation, we'll look at 7 monthly dividend stocks that have a yield of over 10% as of June 2022.
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- Orchid Island Capital, Inc.
- AGNC Investment Corp.
- Dynex Capital
- Broadmark Realty
- PennantPark Floating Rate Capital Ltd.
- Prospect Capital
- Horizon Technology Finance Corp.
#1 - Orchid Island Capital, Inc. (NYSE:ORC)
The first company on this list also has the highest monthly dividend payout ratio of over 20.53%. Orchard Capital (NYSE:ORC) is a real estate investment trust (REIT) that invests in residential mortgage-backed securities that are backed by single-family residential mortgage loans, or Agency RMBS. The company serves customers in the state of Florida which is seeing an influx of potential home buyers as a result of the pandemic.
In June 2022, the company announced it was increasing its dividend to 4.5 cents a share. This boosts the annualized dividend to 54 cents from 50 cents a nearly 10% YOY increase. In addition to the monthly dividend payout, the company has a stock price as of June 2022 that is near its 52-week low at around $2.63 per share. However, that means a modest investment can yield a nice supplemental income.
The stock is not heavily owned by institutional investors. But buying volume has outpaced selling volume in four of the last five quarters.
About Orchid Island Capital
Orchid Island Capital, Inc, a specialty finance company, invests in residential mortgage-backed securities (RMBS) in the United States. The company's RMBS is backed by single-family residential mortgage loans, referred as Agency RMBS. Its portfolio includes traditional pass-through Agency RMBS, such as mortgage pass through certificates and collateralized mortgage obligations; and structured Agency RMBS comprising interest only securities, inverse interest only securities, and principal only securities.
Read More - Current Price
- $7.93
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 1 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $9.50 (19.8% Upside)
#2 - AGNC Investment Corp. (NASDAQ:AGNC)
AGNC Investment Corp. (NASDAQ:AGNC) is another REIT that operates similar to the first stock on our list, Orchard Capital. AGNC is considered a REIT, but rather than own properties it buys mortgage-backed securities. Like Orchard, investors are buying AGNC stock for its reliable high-yield dividend. The company also has a $5 billion market cap which makes it one of the largest REITs.
One reason that investors can count on this kind of security is that the company invests only in securities that are issued by Fannie Mae, Freddie Mac, Ginnie Mae or the Federal Home Loan Banks. This means investors get paid principal interest even if the borrower defaults on the mortgage. AGNC stock currently has a dividend yield of 13.83% with an annualized payout of $1.44 per share.
AGNC stock will remain under pressure as the Federal Reserve raises interest rates, and begins the process of moving its own mortgage-backed securities off its books and onto the open market. Still, it’s hard for investors to ignore the dividend which looks to be highly secure at least for now.
About AGNC Investment
AGNC Investment Corp., formerly American Capital Agency Corp., is a real estate investment trust. The Company invests in agency residential mortgage-backed securities on a leveraged basis. Its investments consist of residential mortgage pass-through securities and collateralized mortgage obligations (CMOs) for which the principal and interest payments are guaranteed by a government-sponsored enterprise, such as the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), or by the United States Government agency, such as the Government National Mortgage Association (Ginnie Mae) (collectively, GSEs).
Read More - Current Price
- $9.45
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 7 Buy Ratings, 3 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $10.44 (10.4% Upside)
#3 - Dynex Capital (NYSE:DX)
REITs come in many different shapes and sizes depending on the holdings in their portfolios. The next company on our list is Dynex Capital (NYSE:DX). Like the first two companies on this list, Dynex is not a pure REIT in that residential mortgage-backed securities make up over 90% of its holdings. But the company also has some exposure to commercial mortgage-backed securities (CMBSes).
DX stock was trading nearly flat for the year, but has been tumbling in June based on concerns over what the combination of festering inflation and a tighter monetary policy will do to the real estate market. That being said, the stock is still considered a buy according to the analysts tracked by MarketBeat.
Dynex currently has a dividend yield of 10.71% with an annual payout of $1.56 per share.
About Dynex Capital
Dynex Capital, Inc, a mortgage real estate investment trust, invests in mortgage-backed securities (MBS) on a leveraged basis in the United States. It invests in agency and non-agency MBS consisting of residential MBS, commercial MBS (CMBS), and CMBS interest-only securities. Agency MBS have a guaranty of principal payment by an agency of the U.S.
Read More - Current Price
- $12.57
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 4 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $13.56 (7.9% Upside)
#4 - Broadmark Realty (NYSE:BRMK)
The last REIT on this list, Broadmark Realty (NYSE:BRMK) is another example of how REITs can have very different investment portfolios. Broadmark invests in “deed of trust” loans. These are essentially construction loans.
The company benefited from the boom in new construction during the pandemic. And BRMK is under pressure as housing starts have slowed. However, Broadmark is protected by its conservative approach. Specifically, the company has a weighted average loan-to-value of just 60%. That means it will not provide more than $120,000 for a property valued at $200,000. This provides a margin of error if the borrower defaults.
BRMK stock has a current dividend yield of 12.92% and has an annualized payout of 84 cents per share. The stock has a fair amount of interest from institutional investors. However, investors should note that inflows and outflows are nearly equal in the last 12 months.
About Broadmark Realty Capital
Broadmark Realty Capital Inc operates as a commercial real estate finance company in the United States. It engages in underwriting, funding, servicing, and managing a portfolio of short-term trust loans to fund the construction and development, or investment in residential or commercial properties. The company has elected to be taxed as a real estate investment trust.
Read More - Current Price
- $4.82
- Consensus Rating
- N/A
- Ratings Breakdown
- 0 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- N/A
#5 - PennantPark Floating Rate Capital Ltd. (NASDAQ:PFLT)
Moving away from REITs brings us to another popular category of high-paying dividend stocks, business development companies (BDCs). And the particular BDC we’re looking at is PennantPark Floating Rate Capital (NASDAQ:PFLT).
PennantPark invests in small companies that present opportunities for growth. Evaluating the prospects of small companies adds a risk premium to PFLT stock. However, the company has a dedicated team of analysts that allow the company to deliver a higher rate of return on successful investments.
And as its name implies, the company has the ability to command higher interest rates as interest rates climb. That may drive up the company’s revenue as interest rates trend higher. So far in 2022, the company’s revenue is up 26% on a year-over-year basis with earnings up approximately 19%.
PFLT stock currently carries a dividend yield of 10.6% with an annualized payout of $1.14 per share.
About PennantPark Floating Rate Capital
PennantPark Floating Rate Capital Ltd. is a business development company. It seeks to make secondary direct, debt, equity, and loan investments. The fund seeks to invest through floating rate loans in private or thinly traded or small market-cap, public middle market companies. It primarily invests in the United States and to a limited extent non-U.S.
Read More - Current Price
- $10.68
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 2 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $12.00 (12.4% Upside)
#6 - Prospect Capital (NASDAQ:PSEC)
Another BDC to consider is Prospect Capital (NASDAQ:PSEC). Like REITs it’s important for investors to understand the methodology behind the portfolio of every BDC. In the case of Prospect Capital the company provides financing to mid-market companies as well as some established companies.
By multiple metrics, PSEC stock looks undervalued at its current price of around $6.78. But that is contrary to the opinion of the analysts tracked by MarketBeat who deem the stock a Hold at this time. Nevertheless, the company has been successfully delivering a high return on equity (ROE).
There’s been no recent insider buying in the last 12 months. However, if you go back to the onset of the Covid-19 pandemic there was a significant amount of buying. In fact, the CEO purchased approximately 7 million shares himself. And these weren’t stock options or grants which makes them that much more impressive.
About Prospect Capital
Prospect Capital Corporation is a business development company. It specializes in middle market, mature, mezzanine finance, later stage, emerging growth, leveraged buyouts, refinancing, acquisitions, recapitalizations, turnaround, growth capital, development, capital expenditures and subordinated debt tranches of collateralized loan obligations, cash flow term loans, market place lending and bridge transactions.
Read More - Current Price
- $4.19
- Consensus Rating
- Sell
- Ratings Breakdown
- 0 Buy Ratings, 0 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $4.50 (7.4% Upside)
#7 - Horizon Technology Finance Corp. (NASDAQ:HRZN)
For a BDC that provides some exposure to the technology sector, investors can choose Horizon Technology Finance Corp (NASDAQ:HRZN). Tech stocks in general have been battered since late 2021 as investors flew to the safety of other asset classes. And the tech sector may remain under pressure as rising interest rates will give conservative investors a few more options.
However, like every stock on this list, you’re buying HRZN stock for its dividend. And that currently means investors get a 11.20% dividend yield with an annualized payout of $1.20 per share. That’s not too bad for holding on to a stock that is likely to achieve capital growth when sentiment returns. Plus, the company has recently been diversifying into sectors such as medical technology and green technology.
Company management seems to agree as four insiders have been buying HRZN stock in the last 12 months totaling over $369,000.
About Horizon Technology Finance
Horizon Technology Finance Corporation is a business development company specializing in lending and and investing in development-stage investments. It focuses on making secured debt and venture lending investments to venture capital backed companies in the technology, life science, healthcare information and services, cleantech and sustainability industries.
Read More - Current Price
- $8.85
- Consensus Rating
- Reduce
- Ratings Breakdown
- 0 Buy Ratings, 4 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $9.35 (5.6% Upside)
One of the limitations of monthly dividend stocks is that they can lack diversification. There are only about 50 companies that pay monthly dividends. And as you can see, many of these companies are REITs, business development companies (BDCs) or master limited partnerships. That means that if you own several of these stocks, they can cause your portfolio to be overexposed to a notoriously cyclical sector. If you want a truly diversified portfolio, you'll want to have exposure to other sectors.
An additional risk of monthly dividend stocks is that companies that pay monthly dividends can be under short-term pressure to deliver results. However, since monthly dividends align more closely with household budgets, the benefit of having exposure to this sector easily outweighs the risk. And if you're an investor that still has a timeframe that allows you to reinvest dividends, monthly dividend payouts accelerate the benefits of compounding.
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