Updated on May 6th, 2019 by Quinn Mohammed
The vast majority of dividend paying companies make payments to shareholders once per quarter. Others pay dividends even less frequently, such as a semi-annual or annual payment schedule. This can cause cash flow issues for investors who might want monthly income.
There are some companies, however, that make monthly payments. In fact, there are 39 such companies that pay dividends to investors each month.
You can see the full list of monthly dividend stocks below:
This article examines the 10 highest yielding monthly dividend payers for investors looking for both monthly income and high income from their investments.
You can learn more about monthly paying dividend stocks in the following video.
It is important to note that high yielding monthly dividend payers are, on average, far riskier than the overall market. There is elevated risk of a dividend cut with high payout ratios – which are often associated with very high yields.
While some of the highest-yielding monthly dividend stocks are attractive for investment, others are potentially flashing warning signals to investors.
Table Of Contents
The 10 highest-yielding monthly dividend stocks selected for this article are listed in order by dividend yield, from lowest to highest.
- San Juan Basin Royalty Trust (SJT)
- Harvest Capital Credit (HCAP)
- Whitestone REIT (WSR)
- Stellus Capital (SCM)
- Horizon Technology Finance (HRZN)
- Prospect Capital (PSEC)
- Global Net Lease (GNL)
- Capitala Finance (CPTA)
- AGNC Investment (AGNC)
- Orchid Island Capital (ORC)
High Yield Monthly Dividend Stock #10: San Juan Basin Royalty Trust (SJT)
Dividend Yield: 8.0%
SJT is a royalty trust, established in November 1980. The trust is entitled to a 75% royalty interest in various oil and gas properties across over 150,000 gross acres, in the San Juan Basin of northwestern New Mexico. More than 90% of the trust’s production is comprised of gas, with the remainder consisting of oil.
The trust does not have a specified termination date. It will terminate if royalty income falls below $1,000,000 per year over any consecutive two-year period.
In 2018, the price of natural gas collapsed, leading to a drastic cut in royalty income per unit.
The average price of natural gas fell almost 30% to $1.89 per Mcf in last year. This led to a 42% decline in royalty income. Higher expenses caused distributable income to drop by 54%.
As a trust, SJT’s dividends are classified as royalty income. Distributions are considered ordinary income, and are taxed at the individual’s marginal tax rate. Since oil prices are so important to royalty trusts’ cash flow, it is no surprise that SJT’s dividends have declined from 2014 to 2016.
If the trust lasts 10-15 years, the conservative estimate by independent petroleum engineers, at the 2018 distribution rate of $0.385678 per unit, investors would receive approximately $3.86-$5.79 per unit in distributions.
Investing in SJT right now is essentially making a bet on two things—higher oil and gas prices, and a longer-than-expected lifespan of the trust.
Royalty trusts can be a good source of dividend income because of their high yields. But investors need to make sure the trust’s assets will not run out before the initial investment is paid back. It appears that SJT investors will need a significantly higher price of natural gas and oil in order to make the stock a good investment.
If energy prices were to collapse again, SJT’s distributions would likely suffer another steep decline. Investors looking for less risk from a dividend stock are encouraged to avoid royalty trusts like SJT.
High Yield Monthly Dividend Stock #9: Harvest Capital Credit (HCAP)
Dividend Yield: 9.1%
Harvest Capital Credit Corporation is a publicly traded BDC that specializes in investing in small-and-medium sized businesses in the United States.
Harvest targets companies that are either cash-flow positive and can support its repayments, or companies with attractive and valuable assets that can be used as collateral. Target companies generally generate $10 million to $100 million in annual revenue, and most deals are directly originated instead of syndicated.
The company uses senior secured debt, term loans, junior secured loans, subordinated debt, and minority equity investments. This flexibility allows it to offer financing solutions to a wide variety of companies.
Source: Q4 earnings press release
Harvest Capital reported core net investment income of $0.93 per share for fiscal year 2018, declining 34% from 2017. Investment income was lower than the previous year due to a smaller investment portfolio than the previous year. A smaller portfolio size has meaningful impact on the BDC, as Harvest Capital’s profitability comes from the income it can generate from its investments.
Harvest does not have a strong dividend history. The dividend was cut in February of 2018 from $0.1125 per share, to $0.095 per share. The dividend was reduced again for 2019, this time to the current value of $0.08 per month. Annualized, the payout comes to $0.96 per share. This highlights the nature of investing in BDCs. There always exists a meaningful risk that the payout is unsustainable. Stocks with near 10% yields are attractive, but are not for risk-averse investors.
With a 9.1% dividend yield, Harvest has obvious appeal for income. But Harvest is not a stock that can be a part of a “set-it-and-forget-it” portfolio. Investors cannot simply buy Harvest shares and assume the dividend will be sustainable, as the company has cut the payout twice in just the past 17 months.
High Yield Monthly Dividend Stock #8: Whitestone REIT (WSR)
Dividend Yield: 9.1%
Whitestone REIT acquires, owns and develops commercial properties in densely populated areas. Most of its shopping center REIT brethren have large spaces with traditional tenants. As a REIT, Whitestone is legally required to pay out 90% of their profits as distributions. This means REITs (on average) have high yields.
The trust’s properties are mostly in Phoenix and Houston, with smaller allocations to other major cities in Texas. These areas were chosen for very specific reasons. The company’s acquisition criteria includes community-centered properties that are visibly located in developing and diverse areas.
These properties are typically in densely populated areas with growth potential, focusing on Houston, Dallas, Chicago, and Phoenix.
Source: April 2019 Investor Presentation, page 8
The median household income within three miles of a Whitestone property is $95,182, 10.5% above the REIT’s peer average median income. Higher median incomes mean that consumers in the area can afford to purchase higher priced items. Not only does Whitestone expect its properties to benefit from population growth, but from household income growth as well.
Instead of a “one size fits all” mentality for its properties, Whitestone aims to add tenants that can meet the needs of the surrounding neighborhoods. Consumers have responded well to this philosophy and Whitestone has seen demand for its properties increase.
Since the REIT went public in 2010, Whitestone has seen occupancy rise from 80.3%to 90.5% as of Q4 2018. Same store sales increased 3.3% in 2018, largely above the peer average of 1.8%. Shares of Whitestone have performed well in recent years.
Source: April 2019 Investor Presentation, page 5
While almost all other shopping center REITs have seen their shares decline in the last twelve months, Whitestone’s stock has nearly a thirty percent return. The REIT has also outperformed all peers in the last three years, and more than half in the past five years.
For REITs like Whitestone, Funds From Operation, or FFO, is a better measurement of profitability and cash flow then the traditional earnings per share metric that is used to value most stocks. Because depreciation costs weigh on earnings and REITs often have high rates of depreciation, EPS is not an accurate measure of how a company is performing.
The REIT divested five properties in 2018, which lowered core funds-from-operations, or FFO, down from $1.25 per share in 2017 to $1.16, a decline of 7.2% year-over-year. However, those dispositions generated $29 million of proceeds that can be used for paying the dividend, existing property improvements, or acquisitions.
Conditions remained difficult in the 2019 first quarter. Despite same-store NOI growth of 2.4%, adjusted FFO-per-share of $0.24 was flat from the same quarter last year. Growth in management, transaction, and other fees was offset by rising interest expense and a higher share count, among other factors.
Whitestone began paying a quarterly dividend on October 1999. In April, the REIT began paying a monthly dividend. Whitestone has cut its dividend several times before, most recently for the July 2010 payment. Since then, the REIT has paid the same monthly dividend so investors looking for dividend growth will be disappointed.
On the other hand, the company hasn’t cut its dividend in a very long time, making it one of the more consistent high yielding stocks on this list. The current yield is above 9%, which could make Whitestone a very nice income generating position within an investor’s portfolio.
The dividend totals $1.14 per share annually, and in recent years, Whitestone’s core FFO per share has covered the payout. Guidance for 2019 calls for core FFO-per-share of $1.06 to $1.10. This would suggest Whitestone may not have adequate core FFO to fully cover the dividend this year.
Whenever a dividend is not covered by earnings, investors should take notice. This is particularly true for Whitestone given that its FFO is moving in the wrong direction. We see Whitestone’s yield as very attractive, but also one that carries risk of a cut given the factors discussed here. That, in turn, reduces the attractiveness of the stock.
High Yield Monthly Dividend Stock #7: Stellus Capital (SCM)
Dividend Yield: 9.4%
Stellus Capital Investments is a closed-end management investment company. The company seeks to maximize total return to shareholders with high dividend income and capital appreciation. Stellus Capital is considered a regulated investment company for tax purposes.
Stellus Capital has approximately $1.4 billion in assets under management. The company is divided into two investment arms, private credit and energy private credit. The private credit division makes direct loans into medium sized companies (i.e. companies with between $5 and $50 million in EBITDA) in a wide variety of sectors such as business, technology, healthcare and retail. The energy private credit division invests in small and medium sized energy companies.
The following chart shows Stellus Capital’s portfolio and geographic diversification.
Source: Stellus Capital Investment Q4 2018 Investor Presentation, page 13
As you can see, only the Services and Healthcare/Pharmaceuticals industries accounts for more than 10% of the investment portfolio. Stellus Capital spreads its investments among 24 different states. Only Texas and California occupy more than 10% of the portfolio. A diversified portfolio and geography help protect the company from an industry or region specific downturn.
When it comes to earnings figures, investment companies are judged on their net investment income, or NII, rather than a traditional metric like earnings per share. NII is the amount of income left over after operating expenses are subtracted from total investment income.
Net investment income was $1.42 per share for all of 2018, indicating a dividend payout ratio of 96%. This means the current dividend payout is sustainable, but just barely. Keep in mind BDCs are required to distribute virtually all of their income, so Stellus’ payout ratio will always be high. Even so, the company does not have much wiggle room. Even a modest decline in investment income could cause the payout ratio to rise above 100%, which signals a potentially unsustainable dividend.
Stellus Capital has paid a dividend since December 2012 and a monthly dividend since January 2014. While the dividend has remained the same since the company IPOed, a 9.4% yield is very attractive. Factor in a diversified business model and shares of Stellus Capital could be an appealing addition to an investor’s income portfolio.
Of course, there is no guarantee the company’s growth plans will be successful and with a payout ratio nearing 100%, there is not much room for error. As a result, investors must accept the risk of a future dividend cut if financial results deteriorate. Only investors willing to take this risk should consider buying the stock.
High Yield Monthly Dividend Stock #6: Horizon Technology Finance (HRZN)
Dividend Yield: 10.2%
Horizon Technology Finance is a leader in the venture lending platform. The company is a BDC and has invested more than $1.5 billion in venture loans to more than 235 growing companies since 2004. The BDC invests capital in a variety of companies.
Horizon makes its returns via investments in companies through directly originated senior secured loans and, to a smaller extent, capital appreciation potential through warrants.
It provides debt financing to early-stage companies across three industry groups:
- Life Science
- Healthcare Information & Services
Life science companies primarily include biotechnology, medical devices, and specialty pharmaceuticals. Technology investments are typically made in cloud computing, wireless communications, cyber security, data analytics and storage, internet, software, and more. Healthcare information includes diagnostics, medical records, and patient management software providers.
A breakdown of Horizon’s portfolio by industry and geography is as follows:
Source: Investor Presentation
The portfolio is heavily weighted in the technology group, but even within that group, industries are highly diversified.
In addition, the company has a favorable mix of stable and growing companies, respectively, in its portfolio, to provide a mix of growth and safety in its lending.
In 2018, Horizon reported net investment income of $13.9 million, or $1.20 per share, for the year. This was a 12% increase from the previous year. Horizon’s dollar-weighted annualized yield on average debt investments for the year was 15.3%, up from 15.1% in 2017.
Additional details about Horizon’s portfolio can be seen below:
Source: Investor Presentation
Horizon began paying a monthly dividend in January of 2013. Shareholders received the same dividend each month for almost four years. Horizon cut its dividend from 11.5 cents monthly to 10 cents monthly, or $1.20 per share annually, late in 2016. It continues to declare a monthly dividend of 10 cents for 2019. Even after the cut in dividend payment, shares of Horizon still offer a very generous yield.
Net investment income for 2018 was $1.20, exactly the same level as the distribution. A payout ratio of 100% leaves virtually no room for error. If investment income declines in the future, the dividend would be in danger of a reduction.
Horizon’s first-quarter results did not show meaningful improvement. Net investment income of $0.28 per share was flat from the same quarter last year, and did not fully cover the $0.30 per share paid in distributions during the quarter.
Horizon maintained its monthly dividend rate of $0.10 per share for July, August, and September. But should Horizon’s financial results deteriorate, a dividend cut is certainly possible, as occurred in 2016.
Horizon could be an attractive stock for income investors thanks to its 10.2% dividend yield, with the acknowledgement that the dividend could be at risk in a business downturn.
High Yield Monthly Dividend Stock #5: Prospect Capital (PSEC)
Dividend Yield: 10.7%
Prospect Capital Corporation is an investment company that hopes to achieve high income and capital gains for its shareholders through the use of debt and other equity investments.
As a business development company, or BDC, Prospect Capital invests in small and medium size companies. Businesses in the initial stages of development seek capital from BDCs to help grow. BDCs like Prospect Capital pay no income tax if they meet certain requirements, such as distributing at least 90% of their taxable income to shareholders.
Prospect Capital is a leading provider of private equity and private debt financing for middle market companies, broadly defined as a company with between 100 and 2,000 employees.
Operating in the middle market is beneficial for Prospect Capital because of the lack of competition from larger, more established lenders. In addition, with a market capitalization of $2.4 billion and assets near $6 billion, Prospect Capital is one of the larger players in this market.
Source: Prospect Capital Corporation Investor Presentation, slide 9
For the six months ended 12/31/2018, Prospect Capital produced $0.45 per share in net investment income, which compares favorably to its distributions of $0.36 per share.
In other words, the dividend is actually well-covered by net investment income at this point, meaning the payout should be relatively safe, barring a sizable economic downturn.
The company has now paid 129 consecutive monthly distributions to shareholders. Unfortunately, management cut the distribution in September of 2017, with the payout falling from 8.3 cents monthly to the current 6 cents.
Source: Prospect Capital Corporation Investor Presentation, slide 15
Even so, Prospect Capital has declared total distributions of $17.16 per share since its IPO, which is nearly three times the current share price of $6.75.
Clearly, the draw for Prospect Capital is in its ability to generate cash to return to shareholders and over time, it has done that well.
The dividend appears safe for now, but investors should continuously monitor the company’s net investment income for any signs of trouble that could potentially lead to further cuts down the road.
High Yield Monthly Dividend Stock #4: Global Net Lease (GNL)
Dividend Yield: 11.2%
Global Net Lease is a real estate investment trust that maintains a globally-diverse portfolio of commercial real estate properties. The REIT focuses on triple-net leases, where the occupant is responsible for paying the three major secondary costs associated with buying real estate:
- Maintenance costs
- Insurance costs
- Property taxes
Global Net Lease’s collection of real estate assets are made up mostly of investment grade corporate tenants. The company has real estate in the U.S., the U.K., Germany, the Netherlands and Finland, among others.
Source: Investor Presentation
As you can see from the image provided by the company, Global Net Lease focuses on high-quality tenants, which helps protect the company during economic slowdowns. The company also has a wide variety of industries in its portfolio.
While 38% of the total portfolio is described as “other”, the financial services industry is the next largest individual portion and accounts for 12% of assets. No other industry occupies more than 6% of the total portfolio. Global Net Lease also has diversity among the types of properties that it owns. Property types are divided among Office (53%), Industrial / Distribution (39%), and Retail (8%).
Global Net Lease’s AFFO per share totaled $2.11 in 2018, up very slightly from $2.10 in 2017. In the same period, revenue increased 8.8% to $282.2 million. The real estate portfolio was 99.2% leased, with an 8.3 year weighted average remaining lease term at the end of 2018.
The trust’s dividend was $2.13 over the same time period, meaning that the dividend was not covered by AFFO. This has been the case in most years since Global Net Lease went public in 2015. Due to this fact, the trust’s dividend could be at risk for a cut if the economic conditions weaken and cause a severe decline in AFFO. While the REIT has only raised its dividend twice since its IPO, it has never cut its dividend.
A high occupancy rate, a portfolio of mostly investment grade companies, and a covered dividend make Global Net Least one of the best high yield monthly dividend-paying companies.
High Yield Monthly Dividend Stock #3: Capitala Finance (CPTA)
Dividend Yield: 11.6%
Capitala Finance Group is a Business Development Company, or BDC, that has $2.7 billion in assets under management.
The company’s strategy focuses on investing in debt securities and minority equity co-investments, typically for companies with enterprise values lower than $250 million. Additional criteria used in evaluating investment opportunities include annual revenue of $10 to $200 million, and trailing-twelve-month EBITDA of $4.5 to $30 million.
The company has invested in over 150 different companies since its inception in 1998 and seeks to partner with strong management teams to create value and achieve optimal outcomes for shareholders.
Source: Investor Presentation
Capitala has investments in a wide range of industries. The largest industry by investment dollars for Capitala’s is Business Services (20% of the portfolio), followed by Other (15%) and Information Technology (13%).
Capitala’s investments are almost all made to companies inside of the United States, with half of the portfolio based in the southern states. Industry and geographic diversification offer some protection against soft economic conditions.
Net investment income for the year was $16 million, or $1.00 per share, which was up fractionally from 2017. Net assets at the end of 2018 were $190.6 million, or $11.88 per share, which was well down from 2017’s ending value of $13.91 per share.
Total investment income was $47.3 million for the year, which was down from $51.1 million in the same period in 2017. The decline was due to a smaller investment portfolio, though Capitala managed to lower its expenses in the quarter.
Investors should be aware that Capitala cut its dividend almost 36% on 10/2/2017. In fact, the company has cut its dividend several times over the past few years, and the 2018 payout ratio was 100%, meaning that only the most risk-tolerant investors should consider Capitala.
High Yield Monthly Dividend Stock #2: AGNC Investment (AGNC)
Dividend Yield: 12.2%
AGNC Investment Corp is a mortgage real estate investment trust. The REIT invests in agency mortgage-backed securities and produces income mostly through borrowing structured as repurchase agreements. Repurchase agreements are those where one party purchases an asset at a price and then also agrees to buy back the asset at a predetermined, higher price at a later date.
AGNC is the largest internally managed residential mortgage REIT in the market and one of just three such companies with a market cap above $5 billion.
Below is AGNC’s portfolio at the end of the 2019 first quarter.
Source: Investor Presentation
As you can see, most of the company’s portfolio is comprised of 30-year fixed mortgages. Since AGNC uses leverage to increase its portfolio holdings and pay its dividend, the REIT is highly sensitive to fluctuations in interest rates. With higher interest rates, the costs of borrowing money increase.
For every 100-basis point increase in interest rates, AGNC will see a 1.6% change in portfolio market value. If mortgage-backed securities spreads rose just 25bps, AGNC’s tangible book value would fall more than 14%. This speaks to the tremendous leverage the trust has and its reliance upon a favorable rate environment to reach its stated goal of higher net asset value.
Rising interest rates are highly inversely correlated to a mortgage REIT’s ability to generate higher spreads on its portfolio, so in general, earnings capacity falls.
In 2018, AGNC posted a loss of $1.14 per share in comprehensive income. Its net spread and dollar roll income per share was $2.35, and it declared $2.16 per share in total dividends.
The 2019 first quarter did not offer AGNC much in terms of relief. Net interest income of $164 million declined 27% from the same quarter last year. As a result, the company announced it intends to reduce its monthly dividend payout by 11%, to $0.16 per share going forward.
AGNC began paying a monthly dividend in late 2014 and almost immediately slashed its dividend. Since then the REIT has reduced its dividend to shareholders two other times, most recently for the August 2016 payment.
Due to the constant dividend decreases announced by AGNC, it is best to stay away from this corporation as a dividend growth investor. While the adjusted dividend will still result in an elevated yield, this too is at risk of being cut in the future due to AGNC’s established history.
High Yield Monthly Dividend Stock #1: Orchid Island Capital (ORC)
Dividend Yield: 14.6%
Orchid Island is a specialty finance company that invests in residential mortgage-backed securities, or MBS. The principal and interest of these securities are guaranteed by the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and the Government National Mortgage Association, known as Fannie Mae, Freddie Mac and Ginnie Mae, respectively.
Mortgage REITs typically have much higher dividend yields than standard REITs, but this does not necessarily make them better investments. As investors saw first-hand during the 2008 financial crisis, mortgage-backed securities can be highly volatile and risky. This is the first reason why risk-averse income investors would be wise to steer clear of Orchid Island.
Orchid Island’s inconsistent ability to generate positive earnings-per-share in the past several years can be seen in the following image:
Source: Investor Presentation
Last year was a difficult one for Orchid Island. The company saw a net loss of $0.52 per share. This included a $0.80 loss per share due to large portfolio losses. Adjusting for this loss, the REIT saw net interest income of $0.28 per share. Book value per share equaled $6.84 at year end, compared to $8.71 at the end of 2017.
Orchid Island slashed its dividend 21.4% on 1/11/2018. Prior to this, the company had reduced its dividend to $0.14 from $0.18 in June of 2015. The current yield is quite high, but investors should be aware that a dividend cut could occur again.
The company is off to a difficult start to 2019. First-quarter net interest income of $13.5 million was a 45% year-over-year decline. On a per-share basis, Orchid Island reported earnings-per-share of $0.22, below the $0.24 per share in declared dividends in the first quarter.
There are too many red flags for Orchid Island to be considered an attractive investment. As a result, income investors would be better served buying higher-quality dividend stocks, with more sustainable payouts.