Want $200 in monthly dividend income? This ultra-high yielding stock duo can make it happen

There’s no way to water it down: this has been a tough year for both professional and mainstream investors. The first half of the year saw the broad S&P500 produce its worst performance in more than half a century. Meanwhile, technology driven Nasdaq Compound pushed firmly into bearish territory, with a maximum loss of around a third of its value.

While the stock market’s exceptionally poor performance has been a stark reminder that stocks do not move in a straight line, it’s also important to recognize that every correction and bear market throughout history has proven to be an opportunity for growth. purchase for patient investors. . Eventually, every major drop in major US indexes was fully (and partially) recovered by a bull market rally.

In other words, it is not about if you should buy when a bear market presents itself. It’s just a matter of What to buy.

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Ultra High Yielding Monthly Dividend Stocks Can Be Your Golden Ticket to Wealth

Perhaps the smartest move investors can make right now is to grow their money in dividend-paying stocks. Companies that regularly pay a dividend are often profitable on a recurring basis and have a proven track record. Given that these are companies that have weathered economic downturns, there is little to no concern about their ability to thrive once the U.S. and global economy comes back into balance. .

Additionally, income stocks offer a clear track record of outperforming their non-paying counterparts. In 2013, JP Morgan Asset Management released research showing that companies that launched and grew payouts between 1972 and 2012 earned an average annual return of 9.5%. By comparison, non-dividend payers struggled to earn an average annual return of 1.6% over the same period.

Of course, not all dividend stocks are created equal. Studies have also shown that high-yielding stocks can be more trouble than they’re worth. But it’s not always the case.

Not only can investors pocket significant sustainable income from very high-yielding dividend stocks – that’s an arbitrary term I use to describe stocks with a yield of at least 7% – but they can make from a passive income powerhouse that provides a payment each month.

The following two ultra high yielding dividend stocks have an average annual yield of 10.66% and can generate monthly dividend income of $200 with a total initial investment of $22,515 (divided equally between the two companies).

AGNC Investment Corp. : yield of 12.09%

The first monthly dividend stock that has the potential to line the pockets of income investors is the mortgage real estate investment trust (REIT). AGNC Investment Corp. (AGNC -0.50%). AGNC is reporting a stunning 12.09% return, and the company has maintained double-digit returns for 12 of the past 13 years.

Without getting too complicated, mortgage REITs like AGNC aim to borrow money at the lowest possible short-term rate and use that capital to buy higher-yielding long-term assets, such as asset-backed securities. mortgage claims (MBS). This is how the industry got its name. Ultimately, the wider the spread, known as the “net interest margin,” between the average return generated by the assets held and the average borrowing rate, the more profitable the mortgage REIT is.

Income investors love mortgage REITs because it is a very predictable industry. Keeping a close eye on the Federal Reserve’s monetary policy and the yield curve often gives investors the clues they need to determine the performance of mortgage REITs.

Currently, AGNC is struggling under the weight of rapidly rising interest rates. This drives up short-term borrowing costs and flattens the yield curve, which negatively affects the book value of the business. But it’s also an industry with a lot of history behind it that usually makes for an awesome bad news buy.

Over long periods of time, rapidly rising interest rates will really help AGNC. Although it increases short-term borrowing costs, it tends to increase long-term returns on MBS acquired by AGNC Investment. The end result is an expanded net interest margin over time.

Moreover, while it is common to see panic on Wall Street during steep market declines, the US economy spends far more time expanding than contracting. This leads to steepening of the yield curve (longer-dated bond maturities yield higher yields than shorter-dated maturities) more often than flattening. This, too, is a long-term boon to AGNC’s net interest margin.

The final consideration is that AGNC’s portfolio of assets is replete with agency titles. “Agency” assets are guaranteed by the federal government in the unlikely event of default. In short, AGNC’s portfolio is de-risked, allowing the company to use leverage to its advantage in order to increase its profit potential.

Two businessmen using whiteboard and laptop while discussing strategy.

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PennantPark Floating Rate Capital: 9.23% yield

The second rock-solid ultra-high yielding dividend stock that can help you earn $200 in monthly dividend income is a little-known business development company (BDC). PennantPark Floating Rate Capital (LTFP -0.81%). PennantPark has been distributing a monthly dividend of $0.095 for over seven years.

BDCs are companies that generally invest in the stocks or debt of middle-market companies. PennantPark mainly falls into the latter category. Although 13% of its investment portfolio is tied to common stocks and preferred stocks, almost every penny of its remaining invested assets (approximately $1.06 billion) is made up of senior secured debt securities.

Why choose the debt route and not invest in equity? The simple answer is the potential for consistent returns offered by holding middle market corporate debt securities. A mid-sized company typically has a market capitalization of $2 billion or less. These are companies that have not necessarily proven themselves and therefore do not have abundant access to the credit market. As a result, PennantPark Floating Rate Capital can earn higher returns on the senior secured loans it holds. At the end of June, the company’s bond investment portfolio generated a weighted average return of 8.5%.

You might think that focusing on mid-market companies that aren’t necessarily proven would lead to higher delinquency rates. Yet PennantPark’s operating results continue to show otherwise. Including its equity and preferred stock investments, just 0.9% of the company’s total investment portfolio at cost — two of its 123 investments — were non-recognized at the end of June.

However, the undisputed best aspect of PennantPark Floating Rate Capital’s operating model is that its entire debt investment portfolio sports floating interest rates. With the Federal Reserve aggressively raising interest rates to combat historically high inflation, PennantPark should be able to generate higher returns on its bond investment portfolio without having to lift a finger.

Finally, take comfort in the fact that all but $0.7 million of the company’s $1.062 billion debt investment portfolio is senior secured debt. In the event of default, first-ranking creditors are on the front line to recover. This choice by management to invest in first rank secured debt reduces the operational risks for the company and its shareholders.