Whether you're a new investor or you've been at it for decades, 2022 was a very bad year. The benchmark S&P 500 index collapsed by 19.4% and the Nasdaq Composite index fell a stunning 33.1%.
While the market was tanking last year, you may have noticed investors with lots of dividend-paying stocks in their portfolios weren't nearly as stressed out as investors who were watching their growth stocks collapse.
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There are a couple of good reasons dividend stock investors appear stoic during market downturns. First, receiving steady dividend payments that don't fluctuate with market sentiment makes it a lot easier to stay invested. Savvy dividend stock investors also know that shares of companies committed to sharing a portion of their profits significantly outperform growth stocks over time.
Growth stock investors who want more confidence, and seasoned investors who already understand the benefits of owning dividend-paying stocks want to consider Medical Properties Trust (MPW -1.51%), and PennantPark Floating Rate Capital (PFLT -0.17%). In addition to high yields at the moment, both have what it takes to maintain their payouts in good economic times and bad.
Medical Properties Trust
Medical Properties Trust is a real estate investment trust (REIT), which means it can avoid paying income taxes as long as it distributes more than 90% of the profits it generates to its shareholders. This REIT specializes in hospitals and other acute-care centers, but it doesn't run them. Instead, there are 55 hospital-operating businesses paying rent on the 437 properties in its portfolio.
Following the onset of the COVID-19 pandemic in the first quarter of 2020, many of Medical Properties Trust's peers reduced their dividend payments. This REIT stands out because it's raised its payout every year since 2013. At recent prices, it offers a juicy 9.04% yield that's hard to pass up.
Medical Properties Trust can boast hyper-reliable cash flows because it generally gets tenants to sign long-term net lease agreements. In return for slightly lower rates, net leases transfer all the variable costs of building ownership, such as maintenance and property taxes to hospital operators.
The immediate path in front of Medical Properties Trust is a fairly smooth one. Funds from operations, a proxy for earnings used to evaluate REITs, came in at $2.75 per share over the past year. That's more than enough to maintain and raise a dividend payout currently set at $1.16 per year.
PennantPark Floating Rate Capital
PennantPark Floating Rate Capital is a business development company that offers monthly dividend payouts and a 9.4% yield at recent prices.
PennantPark Floating Rate Capital selectively invests in companies that already have private equity backing. It has some non-controlling equity stakes, but most of its capital is tied up in senior secured debt. These loans are the first to be repaid in the event of bankruptcy.
As its name implies, PennantPark Floating Rate Capital focuses on floating-rate debt. In fact, 87% of the company's total capital under management is invested in variable-rate debt instruments that produce bigger payments when interest rates rise. During its fiscal year ended Sept. 30, the average yield on its debt investments worked out to 10%, which was 2.6% more than a year earlier.
Cautious investors will be glad to know that PennantPark isn't interested in fashion, retail, or whatever the flashy investment trends of the day might be. Instead, it searches for middle-market companies with defensible business models, and a proven ability to generate cash.
At its latest tally, there were 125 companies in PennantPark Floating Rate Capital's portfolio. These middle-market businesses generally aren't publicly traded which makes this stock an easy way to diversify your portfolio.
