Would you like to build a retirement portfolio that takes the place of your employment income? If you have bills to pay every month, like most of us, buying stocks that make dividend payments every month could make your budgeting process a lot easier.
Of course, buying stocks simply because they pay every month isn't a great strategy. These dividend payers stand out because they offer yields that are way above average, and they have what they need to continue raising their payouts for many years to come.
1. PennantPark Floating Rate Capital
PennantPark Floating Rate Capital (PFLT -0.87%) is a business development company (BDC) with unusually predictable cash flows. This BDC stands out from its peers by selectively lending to middle-market companies valued under $2 billion. Specifically, it looks for companies with private equity sponsors and a proven ability to generate cash.
As its name implies, the vast majority of its $1.15 billion portfolio consists of floating-rate debt that pays a much higher interest rate now that the Federal Reserve has raised its target rate by more than 4% in less than a year. The average yield on PennantPark Floating Rate Capital's debt investments rose to 11.3% at the end of 2022 from just 7.5% a year earlier.
PennantPark recently raised its monthly payout to 0.10 per share. That works out to a yield of 11.9% at recent prices.
PennantPark Floating Rate Capital stock looks like a buy because it rarely bets on losers. All 126 of its portfolio companies are experiencing rapidly rising debt repayment issues. Despite this challenge, just three companies, representing 0.6% of the portfolio, were on non-accrual status at the end of 2022. With a portfolio of borrowers that can withstand their increasing loan payments, this BDC should have no trouble meeting its dividend commitment.
2. Stag Industrial
Stag Industrial (STAG -0.60%) is a real estate investment trust (REIT) that owns around 112 million rentable square feet of industrial space spread throughout 41 states. The REIT has raised its payout 12 times since 2014, and at recent prices, it offers a 4.6% dividend yield.
Folks betting on this stock are assuming that over time more Americans will buy more stuff, and it's hard to imagine a safer bet. Around 86% of the 562 buildings in Stag Industrial's portfolio are warehouses and distribution centers.
Stag Industrial's diversification puts it in a particularly good position for producing steadily growing cash flows. None of its tenants are responsible for more than 3% of annual rental revenue. Moreover, the largest industry it rents to accounts for just 10.9% of annual rental revenue.
Over the past 12 months, Stag Industrial generated $2.55 per share in funds from operations, a proxy for earnings used to evaluate REITs. This gives it plenty of room to increase its dividend commitment, which currently works out to just $1.47 per share annually.
3. Realty Income
In many ways, Realty Income (O 0.24%) is a champion among monthly dividend-paying REITs. It's declared an unmatched 633 consecutive monthly dividends and raised its payout for 102 consecutive quarters. At recent prices, it offers a juicy 5.1% yield.
Since its foundation in 1969, Realty Income has grown its portfolio to 12,237 commercial properties. Tenants renting its diversified portfolio of properties include Home Depot, FedEx, and Walgreens. Dollar General is the largest tenant, but it's responsible for just 4% of the REIT's annualized rental revenue.
The lockdown phase of the COVID-19 pandemic was a disaster for many of the tenants that lease Realty Income's buildings, but this didn't stop the REIT from meeting and increasing its dividend commitment. That's because the REIT gets its tenants to sign long-term net leases instead of operating its properties itself. This means it can rely on increasing cash flows as long as its tenants can keep up with their rent payments.
There are no guarantees that this company's next 53 years will be as successful as its past. With a well-diversified portfolio of commercial properties, though, its chances look pretty good.
