Are you looking to build a retirement portfolio that can replace your earned income? If you have monthly bills like most people, buying monthly dividend-paying stocks can make budgeting much easier.
Of course, simply buying stocks because they pay monthly is not a good strategy. These dividend payers stand out because they offer significantly higher yields than average and have the ability to keep increasing their dividends for years to come.
1. PennantPark Floating Rate Capital (NYSE: PFLT)
PennantPark Floating Rate Capital (NYSE: PFLT) is a business development company (BDC) with an unusually predictable cash flow. This BDC differentiates itself by selectively lending to mid-sized companies valued at under $2 billion. It specifically looks for companies backed by private equity sponsors with a proven ability to generate cash flow.
As the name suggests, the majority of its $1.15 billion portfolio consists of floating-rate debt, which means it benefits from rising interest rates. With the Federal Reserve increasing its benchmark rate by over 4% in a year, the average yield on PennantPark’s debt investments has risen from 7.5% in the prior year to 11.3% by the end of 2022.
PennantPark recently raised its monthly dividend to $0.10 per share, translating to an impressive 11.9% yield at recent prices.
The company is very selective with its lending and rarely backs losing investments. Out of its 126 portfolio companies, only three companies (0.6% of its portfolio) were in default by the end of 2022. With financially stable borrowers, this BDC should have no trouble meeting its dividend commitments.
2. Stag Industrial (NYSE: STAG)
Stag Industrial (NYSE: STAG) is a real estate investment trust (REIT) that owns 112 million square feet of industrial space across 41 states. The REIT has increased its dividend 12 times since 2014, offering a 4.6% yield at current prices.
Investing in Stag Industrial is essentially a bet that Americans will continue buying more goods over time—a fairly safe assumption. Approximately 86% of Stag’s 562 properties are warehouses and distribution centers.
The company is well-diversified, ensuring a steady and growing cash flow. No single tenant accounts for more than 3% of its annual rent, and no single industry accounts for more than 10.9%.
Over the past 12 months, Stag Industrial has generated $2.55 per share in funds from operations (FFO), a key metric for valuing REITs. Since its annual dividend is only $1.47 per share, there is plenty of room for future increases.
3. Realty Income (NYSE: O)
In many ways, Realty Income (NYSE: O) is the champion of monthly dividend-paying REITs. It has declared an unmatched 633 consecutive monthly dividends and has increased its dividend for 102 straight quarters. At recent prices, it yields 5.1%.
Since its founding in 1969, Realty Income has grown its portfolio to 12,237 commercial properties. Its tenants include Home Depot, FedEx, and Walgreens, with Dollar General being its largest tenant, accounting for only 4% of annual rent revenue.
While the COVID-19 pandemic was disastrous for many of Realty Income’s tenants, it continued to meet and raise its dividend. This is because Realty Income operates on long-term triple-net leases, meaning tenants are responsible for all property expenses. As long as tenants continue paying rent, Realty Income enjoys a growing cash flow.
There’s no guarantee that the next 53 years will be as successful as the last. However, with a well-diversified portfolio of commercial real estate, the odds look very promising.
