These Three Stocks Offer Steady Dividend Income — and High Yields

It’s rare, but some companies operate with monthly dividend payments — and a high yield. This is an attractive choice for retirees and others who live off the income that their investments generate.

Here, we’ll look at three such companies that make a dividend payment every month and that are also offering high dividend yields:

Risky Dynamo: Dynex Capital

Dynex Capital (DX)  is a mortgage real estate investment trust, or REIT, that was founded in the 1980s and is currently valued at $600 million. Dynex Capital invests in mortgage-backed securities (MBS), with those assets being partially financed via debt in order to increase the company’s return on equity via the leverage effect.

Like many other mortgage REITs, Dynex Capital has seen its book value come under pressure in recent quarters, as rising interest rates hurt the fair-market value of the MBS that Dynex Capital holds on its balance sheet. That said, hedges prevented some of these losses, and cash flows remain reliable for now.

During the most recent quarter, Dynex Capital generated earnings available for distribution of $0.24 per share, which pencils out to an annual run rate of $0.96 per share. That would be less than the current annual dividend, but the result was negatively impacted by one-time expenses related to a CFO change. It is thus likely that profits this year will be higher than the third-quarter run rate, with analysts currently predicting earnings-per-share of $1.25 for 2022.

The company pays out a dividend of $0.13 per share per month, which equates to a dividend yield of 12% at current prices — in other words, investors get paid 1% of their investment per month, which is highly attractive for those seeking a big income yield.

There is some uncertainty around future profits, however, thus it is not guaranteed that dividends will always be this high. Investors thus have to live with a somewhat elevated risk of a dividend reduction in the future. But even if the dividend were to be cut by one-third, for example, the dividend yield would be still pretty high, at 8%, thus a dividend reduction would not necessarily be disastrous for shareholders of Dynex Capital that buy shares with the currently very high dividend yield.

Small-Cap Generation: Generation Income Properties

Generation Income Properties (GIPR)  is an internally managed real estate investment trust that owns retail, office, and industrial properties. Generation Income Properties is a small-cap stock that is currently valued at less than $100 million.

Its asset base consists of a double-digit number of properties that are mostly located in major urban markets and that are net-leased to its tenants, which is advantageous for Generation Income Properties, as the REIT doesn’t have to pay all of the operating expenses.

Generation Income Properties began trading in 2019, since then the REIT has increased its dividend substantially, although it should be noted that the most recent dividend adjustment was a dividend reduction. Right now, the company pays out $0.039 per share per month, which makes for an annual payment of $0.47 per share.

Since Generation Income Properties is currently trading at just $4.90 per share, the dividend yield is pretty high, at 9.6%. The company’s adjusted funds from operations came in at $0.16 on a per-share basis for the most recent quarter, which covered the current dividend well. Based on a monthly payout of $0.039 and a $0.16 quarterly profit, Generation Income Properties is covering the dividend at a ratio of close to 1.4, which makes for a dividend payout ratio of around 70%.

Due to Generation Income Properties’ small size, profits can fluctuate from quarter to quarter, thus it’s possible that the coverage ratio will be weaker in future quarters, but thanks to the elevated yield of close to 10%, even a small dividend cut would allow for a still-high dividend yield.

Happy With Gladstone Capital

Gladstone Capital (GLAD)  is a business development company that is currently valued at $350 million. Business development companies organize financing for small and medium-sized businesses that can’t access debt markets directly. Gladstone Capital does primarily make debt investments, which make up around 90% of its assets, but the company also holds small equity stakes in some of its portfolio companies.

Since the smaller businesses that are financed by Gladstone Capital and other business development companies have a hard time getting financing elsewhere, BDCs generally generate above-average interest rates from their investments.

Gladstone Capital is thus highly profitable, although it should be noted that the company has not generated a lot of earnings growth in the past. In fact, earnings-per-share grew by just 10% over the last decade, which makes for a low-single-digit annual growth rate. But since Gladstone Capital is seen as an income investment primarily, its low growth rate is not too much of a problem.

Gladstone Capital currently pays out $0.07 per month, which makes for a $0.84 annual payout. With shares trading for $9.80 today, the company’s dividend yield is 8.6%. The company has kept the dividend at this level for the last decade, which signifies its reliability, but which also suggests that there is a low likelihood for meaningful income growth in the future, unless investors reinvest their dividends to acquire additional shares over time.

For the current year, we are forecasting EPS of $0.98, which results in a dividend coverage ratio of around 1.2. That’s very solid for a business development company, as those oftentimes operate with elevated payout ratios. Since Gladstone Capital has kept the dividend in place at the current level for a long time, despite the fact that profits oftentimes were lower compared to our current year EPS estimate, we believe that there is a low risk of a dividend cut in the foreseeable future.

 (Please note that due to factors including low market capitalization and/or insufficient public float, we consider some of these stocks to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.)