Folks looking for recurring income that doesn't require any effort on their part have lots of options, but dividend-paying stocks are hard to beat if you want a truly passive income stream. Top dividend payers tend to keep delivering cash payments to your brokerage account for decades without interruption. Best of all, you can collect the payments without lifting a finger.
Some dividend payers will deliver a lot more cash to their shareholders than others. Dow (DOW 5.80%) and AGNC Investment (AGNC 2.39%) are well-established companies that offer investors yields more than triple the market average.
With an average yield of 10.4% at recent prices, an investment of $9,700 spread between these two stocks will produce over $1,000 in annual dividend income. Here's why scooping them up now and holding over the long run could be a smart move for some investors.
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1. Dow
Shares of basic materials giant Dow are down by about 38% this year. Investors are reacting to a 50% dividend slash the company announced in July. While the payout has been cut in half, the stock's poor performance has lifted the yield investors can expect in the year ahead to 5.9% at recent prices.
Dow makes polyethylene and other commodity chemicals that are used to produce packaging and consumer goods. Increasing domestic supply in China, combined with rising interest rates in the U.S., made the past few years extra challenging.
New tariffs that change from week to week are causing manufacturers around the globe to dial down their activity, at a time when materials producers were already experiencing a supply glut. As a result, Dow is shuttering unprofitable facilities in Europe to lower operating costs.
Dow's previous payout level was unsustainable, but a plan to lower capital expenditures in 2025 by $1 billion could allow it to meet its dividend commitment until macroeconomic conditions improve. We don't know when the basic chemicals cycle will hit an upswing again, but investors holding Dow shares when it does could see an already high yield grow much larger.
2. AGNC Investment
If you've tried sifting the market for high-yield stocks, you've probably come across AGNC Investment or its peers. At recent prices, it offers a huge 14.9% yield.
AGNC Investment is a real estate investment trust (REIT) that invests in mortgage-backed securities, instead of physical real estate that it can lease to other businesses. The mREIT buys mortgage-backed securities with capital it borrows at relatively low short-term rates. It doesn't have to worry about nonpayment because the mortgages it buys are always backed by a government agency in the event of a default.
While AGNC doesn't have to worry about defaulting homeowners, the value of its mortgage-backed security portfolio is highly sensitive to fluctuating interest rates. The stock offers an unusually high yield right now because an ongoing trade war could force the Federal Reserve to make rapid interest rate changes.
The average yield AGNC receives from its assets rose from 3.72% in the second quarter of 2023 to 4.87% in the second quarter this year. Unfortunately, AGNC's average cost of funds soared from 0.63% to 2.86% over the same time frame.
The $0.12 per-share monthly dividend payment that AGNC provides has been lowered three times since 2015. With profit margins under pressure, there's a good chance we'll see another reduction in the next couple of years. However, while this stock could produce heaps of dividend income up front, investors who don't have an expert-level understanding of the bond market want to tread lightly.
