The best high-yielding dividend stocks do one thing exceptionally well. They grow their dividends. Over the last half-century, dividend growth stocks have delivered significantly higher total returns (dividend income plus price appreciation) than companies that didn't increase their dividends or don't pay them.
Realty Income (O +0.35%) and Main Street Capital (MAIN 3.55%) have extensive track records of increasing their high-yielding dividends. That makes them some of the best high-yielding dividend stocks to buy for those with $1,000 to invest right now.
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More than three decades of dividend growth
Realty Income has a simple mission. The real estate investment trust (REIT) aims to pay a dependable, steadily growing monthly dividend. It has certainly delivered on that goal over the years. Realty Income has increased its dividend for 31 consecutive years, including for the past 113 quarters in a row. It has grown its payout at a 4.2% compound annual rate during that time frame. That has helped drive its robust 13.3% compound annual total return since its stock market listing in 1994.
The REIT's monthly dividend currently yields 4.8%, more than triple the S&P 500's level (1.1%). At that rate, Realty Income could turn a $1,000 investment into about $48 in annual dividend income (roughly $4 per month).
NYSE: O
Key Data Points
Realty Income is in an excellent position to continue increasing its dividend. The REIT expects to invest $8 billion to expand its real estate portfolio this year, which should increase its cash flow per share by about 3% at the midpoint. Meanwhile, with a strong balance sheet and a $14 trillion investable market opportunity, Realty Income should have no shortage of growth opportunities going forward.
A steadily growing base income stream plus a supplemental payment
Main Street Capital is a business development company (BDC). It provides debt and equity capital to smaller private companies. Those investments generate interest and dividend income.
As a BDC, Main Street Capital must pay at least 90% of its taxable income in dividends. The company does this through a unique dividend policy. Main Street Capital pays a monthly dividend set at a sustainable level. Additionally, the BDC periodically pays supplemental quarterly dividends.
NYSE: MAIN
Key Data Points
Main Street Capital has never cut or suspended its monthly dividend. Instead, the company has increased the payment by 136% since going public in late 2007. Meanwhile, it has paid a stable or growing supplemental dividend each quarter for the past several years.
At its current monthly rate, Main Street Capital has a 5.4% dividend yield. Adding in the supplemental quarterly payments boosts the yield to 7.4%.
Main Street Capital is in a strong position to continue growing its monthly dividend. It currently covers that payment by 1.4 times, leaving room to expand. Meanwhile, the company's strong balance sheet and equity investments enable it to grow its portfolio, thereby driving earnings growth. That growth has helped the BDC deliver an annualized total return of more than 17% since its IPO.
Income is only part of the total return
Realty Income and Main Street Capital have excellent records of increasing their high-yielding monthly dividends, which seems likely to continue. That puts them in strong positions to continue generating robust total returns. As a result, they can turn $1,000 into a growing income stream, helping to meaningfully increase the value of that investment over the long term.
