There are many paths to profit on Wall Street, but one of the best remains to buy high-yield dividend stocks. The regular income stream from these companies can juice your portfolio’s returns beyond what’s possible from simple capital appreciation.
That’s because dividend stocks have a long history of outperforming non-payers and do so with less risk. Ned Davis Research found that between 1930 and 2022, dividend stocks represented 41% of the market’s total return. Dividends also limit volatility and enhance total return over time.
It makes sense that this is true. Dividend stocks tend to be consistently profitable companies and usually have gone through numerous business cycles. Good governance demands they share their success with shareholders.
Investors look forward to the revenue streams from dividend stocks for the above reasons. Some, however, prefer to maximize their dividend income immediately. If you want to have your investments help pay your monthly rent, the following three ultra-high-yield dividend stocks make their payout every month. We’re defining “ultra” as being about four percentage points above the average S&P 500 dividend, which is currently 1.46% annually.
So here are some high-yield dividend stocks to consider.
Realty Income (O)
The first monthly high-yield dividend stock capable of generating a monthly revenue stream to pay your rent is real estate investment trust Realty Income (NYSE:O). Founded in 1969, it is one of the market’s first REITs, and it supports its monthly dividend through cash flows generated from over 13,250 real estate properties.
Realty Income has made an uninterrupted 640 monthly dividend payments since going public in 1994 while raising the payout 123 times. There have been 105 straight quarterly increases of the dividend, which currently yields 5.4% annually.
The REIT’s stock wobbled earlier this year after several regional banks collapsed and the commercial real estate market looked shaky. While financial institution woes could make obtaining financing more expensive, Realty Income’s tenants are rock-solid. It has a diverse roster of tenants who typically sign long-term triple-net leases. That means they’re responsible for paying taxes, insurance, and maintenance on the property, not Realty Income. Among its top tenants are Walgreens (NASDAQ:WBA), Dollar General (NYSE:DG), and FedEx (NYSE:FDX).
Realty Income’s stock is offered at a discount to its historical average. With an expected $4 per share in adjusted funds from operations (AFFO), a typical metric used to value REITs, its price-to-AFFO is around 14. Over the past decade, the REIT’s average is about 18. Investors will want to jump on this stock now because of its long track record of dividend hikes.
Main Street Capital (MAIN)
A second ultra-high-yield stock that could assist with cracking that monthly rent nut is Main Street Capital (NYSE:MAIN). It’s a business development company (BDC) or a business that invests early in a small or mid-market growth company’s business cycle to capitalize on its potential. Main Street is one of the oldest BDCs and is primarily considered top in its class.
What makes Main Street Capital unique compared to many of its peers is its monthly dividend and its special dividend twice a year. It has also had a long, uninterrupted stream of dividend payments since making its first payment in 2007. But there’s a caveat: during the pandemic, it suspended payment of the special dividend.
That shows the beauty of Main Street’s dual dividend structure. When other BDCs cut off all income to investors, Main Street could still make its regular monthly payout. It restarted the special dividend, and the combined annual dividend payments mean the BDC’s yields are around 10% annually.
Main Street has approximately $6.8 billion in investment capital under management, with 195 companies in its portfolio. No investment represents more than 4% of total income, and no industry represents over 10%. The well-diversified portfolio protects Main Street’s downside, and because it is typically a first-lien investor, it gets paid first if a company crashes. It’s one of the best safe and secure high-yield dividend stocks to own for long-term wealth creation or a monthly rent payment.
Gladstone Investment (GAIN)
The last monthly dividend stock to consider is another BDC, Gladstone Investment (NASDAQ:GAIN). Unlike Main Street and other BDCs, which focus on making loans to small and medium-sized businesses, Gladstone adds an equity component to its investment profile. It targets about 25% of its portfolio towards equity investments. Most other BDCs have just 5% to 10% of their portfolio in equity. At fair value, though, 33% of the portfolio is in equity investments.
That can make it slightly riskier, but Gladstone’s monthly dividend is based upon its loan portfolio, not the equity portion. It is also a first-lien investor, so it will be paid ahead of other investors in the event of a default.
Gladstone’s structure has allowed it to make 13 years of consecutive dividend payments. And like Main Street Capital, it also makes supplemental dividend payments based on when it exits a business. Over the past five years, Gladstone exited 13 companies for a return of proceeds totaling $354 million. From inception, the BDC has made over 220 consecutive monthly distributions. Coupled with the irregular dividend payments, it has an annual yield of 6.7%.
Gladstone Investment’s portfolio of businesses is also much more concentrated than others in the industry. There are just 26 companies in its portfolio. But it takes a more hands-on approach to its investments, taking seats on the boards of its companies. That allows it to have a greater say in the direction and performance of the business. It’s another solid choice for a stable monthly income stream.
On the date of publication, Rich Duprey held a LONG position in O and WBA stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.