The stock market offers numerous ways for investors to make money. But few investing focuses have proved more lucrative over the long run than buying dividend stocks.
Although the study is now a bit dated, a 2013 report from J.P. Morgan Asset Management provides plain-as-day evidence that dividend stocks run circles around their non-dividend-paying peers over the long term. Companies that initiated and grew their payouts between 1972 and 2012 averaged an annual return of 9.5%. Meanwhile, the companies that didn't pay dividends delivered a considerably lower annualized return of only 1.6% over the same four-decade stretch.
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Considering that most dividend stocks are profitable on a recurring basis and have time-tested operating models, they're the ideal investment focus for folks who have a long-term mindset.
Understandably, though, not all income seekers are patient. That's where monthly dividend stocks come into play. Although only a small number of income stocks parse out a monthly dividend to their shareholders, there are a handful of ultra-high-yielding companies that can be confidently purchased by income seekers.
For example, if you want to generate $300 in monthly dividend income, you don't need to put an insane amount of cash to work. If you invest $45,000 and equally divide it up among the following trio of ultra-high-yielding monthly dividend stocks, which sport an average yield of 8.01%, you'll net about $3,600 annually, or $300 a month.
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AGNC Investment: 9.03% yield
To maximize your monthly dividend income with relatively low risk, mortgage real estate investment trust (REIT) AGNC Investment (AGNC -1.93%) is the stock you'll want to know.
A mortgage REIT seeks to borrow capital at low short-term lending rates, which can then be used to acquire higher-yielding long-term assets, such as mortgage-backed securities (MBS). What AGNC and its mortgage REIT peers are aiming to do is maximize their net interest margin -- i.e., the difference between the average yield on long-term assets and the average borrowing rate.
What's particularly noteworthy about the mortgage REIT industry is that it looks to be in the sweet spot of its growth cycle. When the yield curve is flattening (i.e., when the gap in yield between short-term and long-term Treasury yields is shrinking) and/or the Federal Reserve is making rapid changes to its monetary policy, companies like AGNC often see their net interest margin shrink. Conversely, when the yield curve is steepening and the nation's central bank is transparently telegraphing its monetary policy moves, it's normal for mortgage REITs to expand their book value and generate higher income. Looking back decades, it's extremely common for the latter scenario to take place during the early years of an economic recovery.
Also working in AGNC Investment's favor is its focus on agency securities. Agency assets are backed by the federal government in the event of a default. Through the midpoint of 2021, $85.5 billion of AGNC's $87.5 billion in securities were agency assets. Though this added protection does lower the yield the company receives on its assets, it also allows the company to utilize leverage to pump up its profits.
With AGNC averaging a double-digit-percentage yield in 11 of the past 12 years, it's the perfect monthly dividend stock for impatient income seekers to buy.
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Pembina Pipeline: 7.94% yield
Following the train wreck of a year oil stocks had in 2020, income investors might not be looking toward the energy sector for dividend ideas. However, ignoring monthly dividend payer Pembina Pipeline (PBA -0.63%) wouldn't be a wise idea.
Pembina Pipeline is a midstream company that primarily operates in Western Canada. As of September, it had approximately 32 million barrels-equivalent of storage capacity, and was capable of transporting roughly 3.1 million barrels of hydrocarbons per day.
The beauty of the midstream model is that it's largely unaffected by the day-to-day fluctuations in the underlying price for crude, natural gas, and natural gas liquids. Although higher prices do encourage drillers to boost production, which in turn provides more opportunity for transportation, storage, and refining services, Pembina's contracts are set up in such a way that its cash flow is highly predictable in virtually any economic environment. Being able to accurately forecast cash flow plays a big role in the company's allocation of capital for infrastructure projects.
Speaking of infrastructure, the company has brought over $400 million worth of new projects on line this year, which includes the Prince Rupert Terminal and Northeast British Columbia Terminal. It's also identified north of $6 billion in earnings-accretive projects that are in varied stages of development. Well over $4 billion of this opportunity ties into the Alberta Carbon Grid project, which will focus on liquefied natural gas processing, pipeline connections, and other infrastructure solutions.
Pembina Pipeline is an under-the-radar energy company on track to yield nearly 8% this year.
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LTC Properties: 7.06% yield
The third monthly dividend stock that income seekers can confidently buy hand over fist is LTC Properties (LTC -0.19%). LTC pays out $0.19 per share each month, which works out to a base annual payout of $2.28 (a little over a 7% yield).
LTC Properties owns or holds first mortgages on 176 properties spanning 27 states. The company's focus is on long-term care, with a roughly 50-50 split in its asset portfolio between senior housing and skilled-nursing properties.
As you can imagine, the pandemic has hit senior housing and skilled-nursing facilities hard. Between the dangers COVID-19 presents to the elderly, and the patchwork regulations put in place by select states on senior housing and skilled-nursing facilities, LTC's management team has had its hands full with challenges over the past 18 months. To boot, Senior Care Centers filed for bankruptcy protection during the pandemic. Senior Care accounted for 11 skilled-nursing facilities in LTC's investment portfolio.
Despite these concerns, LTC Properties hasn't had to reduce its monthly dividend, and it's seeing a steady uptick in admissions to senior housing and skilled-nursing facilities since the beginning of the year. Higher vaccination rates among staff and the elderly are moving these industries in the right direction and should significantly lower LTC's payout ratio in the upcoming year.
What's more, LTC Properties looks to be sitting on a veritable gold mine as the baby boomer population ages. Assuming COVID vaccinations move the U.S. out of a pandemic by next year, LTC's management team can once again turn its attention to capitalizing on surefire long-term care growth trends.
