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There are many ways to make money on Wall Street. But few strategies have a long-term track record of making investors richer than buying and holding high-dividend stocks.
In 2023, The Hartford Fund released an extensive report (“The Power of Dividends: Past, Present, Future”) that takes a detailed look at how dividend stocks have outperformed over time. The Hartford Fund, in collaboration with Ned Davis Research, found that the average annual return for dividend payers over half a century (1973-2022) was 9.18%. In contrast, companies that did not provide dividends to shareholders had an average annual return of just 3.95%.
The secret to the success of dividend-paying companies is that they are almost always profitable on a recurring basis, have a proven track record, and can offer transparent long-term growth prospects. The more a company can look into the future and provide accurate predictions, the more likely Wall Street and investors will reward it with an increasingly higher market value.
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The challenge for income investors is simply balancing yield and risk. While higher yields are desirable, they also involve additional risks. The good news is that with proper due diligence, you can find solid dividend stocks with very high yields. can be exposed.
Best of all, some of these stable dividend stocks pay monthly. If he wants to earn a super safe monthly dividend income of $300, all he has to do is invest his $32,000 (divided evenly three ways) into three super high yield stocks. average Yield is 11.28%.
AGNC Investment: Yield 15.34%
The first monthly distributor that can deliver scorching dividends is none other than Mortgage Real Estate Investment Trusts (REITs) AGNC investment (AGNC -1.69%). AGNC has averaged double-digit yields in 13 of the past 14 years, meaning its current 15% yield is not a red flag for income seekers.
Simply put, mortgage REITs seek to borrow money at the lowest possible short-term interest rates and use that money to purchase long-term assets with high yields. These “long-term assets” are often mortgage-backed securities (MBS), which is where the industry gets its name.
Mortgage REITs are highly sensitive to rapid or significant changes in interest rates and the Treasury yield curve. AGNC’s net interest margin has plummeted and asset values have declined due to the fastest rate hike cycle in 40 years and what is likely the longest yield inversion in history. While this is far from an ideal scenario for the mortgage REIT industry, the proverbial green shoots are starting to emerge.
The key to success for mortgage REITs is that monetary policy and yield curve changes occur slowly. This seems to be the strategy for 2024.
Moreover, the U.S. Treasury yield curve has been disproportionately upward-sloping over time. This means that bonds with longer maturities have higher yields than bonds with shorter maturities. As the yield curve normalizes, investors can expect AGNC’s book value and net interest margin to expand significantly.
The importance of the Fed’s monetary tightening cycle should not be overlooked. While a high interest rate environment tends to be less desirable than low interest rates for mortgage REITs, a quantitative tightening cycle means his Fed will no longer buy MBS. In other words, AGNC faces less competition for potentially more profitable MBS with higher yields.
AGNC’s final selling point is that it invests almost exclusively in agency securities. Only $1.1 billion of its $60.2 billion investment portfolio is exposed to credit risk transfers and non-agency assets. “Agency” securities are backed by the federal government in the event of a default, providing an additional layer of protection for a company’s investments.
Pennant Park Floating Rate Capital: Yield 11.02%
The second ultra-high yield stock that can help you take home $300 per month from your $32,000 initial investment (split three ways) is Business Development Company (BDC). Pennant Park Floating Rate Capital (PFLT -0.45%). The company raised monthly wages twice last year.
Without getting into the weeds too much, BDCs make money by investing in the equity (common and preferred stock) and/or debt of middle market companies. I’m primarily talking about private, small-cap, and micro-cap companies.
As of September 30, 2023, Pennant Park had invested more than $900 million in various debt securities, of which nearly $161 million was invested on the equity side. This means it is primarily a debt-focused BDC.
The reason BDCs tend to prefer bonds is because of the yield they can receive. Unproven companies rarely have full access to traditional debt and credit markets. When mid-market companies have access to financing, interest rates are often significantly higher than the market average. As of September, Pennant Park enjoyed a weighted average yield of 12.6% on its fixed income investments.
But it’s not just the above-average yield that makes Pennant Park’s bond portfolio so attractive from an investment perspective. Another key to the company’s success is that 100% of its bonds have floating interest rates.
Every time the nation’s central bank raised its federal funds target rate, the interest rate on Pennant Park’s outstanding loans also rose. On a two-year basis starting September 30, 2021, the weighted average yield on Pennant Park’s fixed income investments increased by 520 basis points to a remarkable 12.6%.
The management team has also done its best to protect the company’s principal. Including stocks, the firm’s approximately $1.07 billion portfolio is diversified across 131 companies, representing an average of $8.1 million per investment. No single investment is essential to a company’s success.
Additionally, 99.99% of the company’s debt is first lien loans. First-lien secured debtors will be at the forefront of repayment if the borrower seeks bankruptcy protection.
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LTC properties: Yield 7.48%
The third ultra-high yield stock that can help you generate $300 in monthly dividend income from a starting investment of $32,000 (divided evenly between three stocks) is a healthcare real estate investment trust (REIT). Characteristics of LTC (LTC -0.69%). The company’s yield is 7.5%, near its highest level in 20 years.
While most sectors and industries have been hurt in some way by the COVID-19 pandemic, it has been an especially difficult time for healthcare REITs focused on senior housing and senior care facilities. Older Americans were hit particularly hard during the early stages of the pandemic, raising serious concerns about whether LTC tenants and renters would be able to pay their bills. Some of these companies are still struggling to recover.
But a sign of success for a REIT and a solid management team is its ability to overcome adversity. Despite overcoming difficult circumstances, LTC has sold some assets, reworked some of its master lease agreements, and restructured some of its problem leases to strengthen its FFO. Successfully moved to new tenant.
We also operate in an industry where time is definitely on our side. The baby boom in the United States from the late 1940s to the mid-1960s created a perfect scenario in which lease prices for senior facilities and housing rose as Americans aged.
Another thing worth noting is that LTC Properties has actually benefited from the Federal Reserve’s aggressive rate hike cycle. LTC Properties provides long-term leases for medical facilities, but also offers mortgage and mezzanine loans. The company was able to generate higher interest income from a variety of loan products after the federal funds target rate increased by 525 basis points within two years.
Finally, the company’s real estate portfolio is well diversified. As of early January, the company had 200 properties across 30 operating partners in 27 states. Similar to PennantPark, the company is reducing its dependence on a single partner or investment.
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