In this article, we will analyze the list of the best dividend stocks that pay the highest monthly dividends.
Dividend stocks have consistently been popular with investors, regardless of how often they are distributed. However, when considering the frequency of these payments, it’s clear that companies carefully decide how often to reward their shareholders. While many large companies prefer to issue dividends quarterly for convenience, others provide monthly dividends, which some investors find more appealing. After all, who wouldn’t appreciate a steady stream of passive income each month? Nevertheless, history indicates that companies offering monthly dividends tend to have higher yields but often lack stable dividend policies.
Dividend stocks have consistently played a crucial role in the market’s overall returns. Since 1960, reinvested dividends and the power of compounding have accounted for 85% of the cumulative total return of the market, according to a report by Hartford Funds. The report further mentioned a broader view of these returns and highlighted that from 1940 to 2023, dividend income contributed an average of 34% to the total return of the broader market. The performance of dividend stocks during this period varied depending on market conditions. According to a report by Hartford Funds, during the 1970s—a decade marked by high inflation and sluggish economic growth—dividends accounted for 70% of total returns.
Also read: 10 Extreme Dividend Stocks With Upside Potential.
Among dividend strategies, investors are primarily drawn to high yields because they signify that the stock offers a substantial return through dividends compared to its price. Focusing solely on yield can be misleading. Some companies maintain dividend payments even when their financial health is shaky, while others distribute dividends too aggressively, leaving insufficient profits to reinvest in their operations. A high dividend yield might actually signal a struggling business with a low share price. This is where dividend coverage becomes a crucial measure of a company’s ability to meet its dividend obligations. If that is not in line, the company is likely using past retained earnings to fund current dividends. This situation often precedes a dividend cut, which can severely impact the company’s valuation.
That said, high-yield dividend stocks can still maintain strong dividend policies if their business fundamentals are solid. Many companies with above-average yields have consistently paid and even increased dividends over the years. Research suggests that, over the long term, such stocks often deliver better results. For example, a study by the University of Nevada found that portfolios composed of the top 10 highest dividend yield stocks from the Dow 30 index outperformed those with medium and low dividend yields from 1987 to 2012. The study also noted that investing in high dividend yield stocks can be profitable in the long run, despite potential short-term fluctuations in returns. In view of this, we will analyze the highest-paying monthly dividend stocks in this article.
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Our Methodology:
For this list, we looked at stocks that pay monthly dividends. Among them, we chose stocks with the highest dividend yields, which range from 11% to nearly 18% as of August 16. Most of these stocks are from the REIT and capital market sectors. REITs are obligated to distribute about 90% of their income to shareholders, which is good for income investors as it provides them with a reliable and substantial stream of dividends. However, it’s important to note that many of these stocks, despite their high yields, don’t have a consistent history of paying dividends and have experienced dividend reductions or pauses in the past. The stocks are ranked in ascending order of their dividend yields as of August 16.
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10. Stellus Capital Investment Corporation (NYSE:SCM)
Dividend Yield as of August 16: 11.55%
Stellus Capital Investment Corporation (NYSE:SCM) is a Texas-based investment management company that mainly invests in lower middle-market companies. The company holds nearly two decades of dedication to small and mid-sized businesses. During this time period, it has invested over $8.5 billion in lower middle market credit and equity across various cycles and industries.
Stellus Capital Investment Corporation (NYSE:SCM)’s investment strategy sets it apart from its peers by focusing on private companies with EBITDA ranging from $5 to $50 million. It spans a diverse array of industries, including aerospace and defense, business services, consumer products and services, and others. The capital deployed is frequently directed toward acquisitions, growth funding, leveraged buyouts, and recapitalization. In the second quarter of 2024, the company reported strong earnings, generating $26.6 million in revenues, up nearly 1% from the same period last year.
In addition, Stellus Capital Investment Corporation (NYSE:SCM) reported strong operating results for the second quarter, with U.S. GAAP net investment income of $0.48 per share and core net investment income of $0.50 per share, both of which covered the declared regular dividend of $0.40 per share. At the end of the quarter, the loan portfolio is yielding 11.7%. Having completed over eleven years of operations, the company has distributed a total of $262 million to its investors. The company currently offers a monthly dividend of $0.1333 per share for a dividend yield of 11.55%, as of August 16. It is among the best dividend stocks on our list.
9. Horizon Technology Finance Corporation (NASDAQ:HRZN)
Dividend Yield as of August 16: 11.63%
Horizon Technology Finance Corporation (NASDAQ:HRZN) is an American specialty finance company that offers secured loans to companies in the technology, life sciences, healthcare information and services, and cleantech sectors that are backed by venture capital. The stock is down by nearly 15% since the start of 2024, facing pressures from its peers. Hercules Capital Inc., one of the company’s major competitors, has seen its stock rise by more than 11% so far this year. That said, its recent quarterly earnings were somewhat encouraging for investors, though they didn’t fully meet expectations.
Horizon Technology Finance Corporation (NASDAQ:HRZN) exercised caution with new originations in the second quarter, concentrating efforts on sourcing high-quality investments to enhance the portfolio in the latter half of the year. The focus on portfolio management is aimed at maximizing the value of existing investments. As a result, significant progress was made, and the company anticipates a return to portfolio growth in the second half of 2024. Despite facing challenges, the company successfully generated net investment income during the quarter that surpassed the regular monthly distributions. This is where HRZN stands out among its peers, particularly when compared to Hercules Capital. While both companies have solid dividend policies, HRZN attracts investors with its monthly dividend payments, whereas Hercules Capital provides quarterly payouts. Although this doesn’t automatically make Horizon Technology Finance Corporation (NASDAQ:HRZN) the better choice, consistently maintaining monthly dividends in a challenging environment does indicate a strong balance sheet.
As of the most recent quarter, Horizon Technology Finance Corporation (NASDAQ:HRZN) has over $81.33 million available in cash. Its trailing twelve-month operating cash flow came in at $45.8 million and the levered free cash flow for the period is $38.8 million. On July 31, the company declared a monthly payout of $0.11 per share, which was in line with its previous dividend. With a dividend yield of 11.63% as of August 16, HRZN is one of the best dividend stocks on our list.
8. Ellington Financial Inc. (NYSE:EFC)
Dividend Yield as of August 16: 12.06%
Ellington Financial Inc. (NYSE:EFC) is a Connecticut-based specialty finance company that acquires and manages a range of financial assets, including those related to mortgages, consumers, corporations, and other financial sectors. The company’s main goal is to deliver appealing, risk-adjusted total returns to its shareholders by investing in opportunities that are expected to offer adequate compensation for the associated risks. The stock surged by over 3% on August 7, after reporting strong quarterly earnings, which impressed investors.
Ellington Financial Inc. (NYSE:EFC) achieved a non-annualized economic return of 4.5% for the second quarter, fueled by widespread contributions from its diversified credit and Agency portfolios, as well as its reverse mortgage platform Longbridge. The company also saw sequential growth in adjusted distributable earnings and book value per share. During the quarter, it also made significant investments across various credit strategies. Concurrently, the company reduced holdings in lower-yielding sectors, such as Agency and non-agency residential mortgage-backed securities The company is confident in its future investments as well. Looking ahead, its investment pipeline through its diversified proprietary loan origination channels remains robust. The loan originators it has invested in are not only contributing to this pipeline but also demonstrating strong profitability.
Ellington Financial Inc. (NYSE:EFC) is one of the best dividend stocks on our list because of its stable cash reserves on its balance sheet. The company ended the quarter with nearly $200 million available in cash and cash equivalents, up from $187.4 million in the previous quarter. It has never missed a dividend since 2009, maintaining a 15-year streak of consistent dividend payments. It currently offers a monthly dividend of $0.13 per share for a dividend yield of 12.06%, as recorded on August 16.
