We recently compiled a list of the 10 Stocks that Pay Dividends Monthly. In this article, we are going to take a look at where Prospect Capital Corporation (NASDAQ:PSEC) stands against the other stocks that pay dividends monthly.
Over the years, dividend stocks have consistently demonstrated resilience in challenging market conditions. While the recent focus on AI might suggest otherwise, the long-term attractiveness of these stocks has increased. Income investors have taken note of this trend, which is reflected in the growing role of dividends as a portion of personal income. According to a report by S&P Dow Jones Indices, the share of dividend income has risen from 2.68% in the fourth quarter of 1980 to 7.88% in the second quarter of 2024, highlighting dividends as a significant source of income. The report also mentioned that since 1936, dividends have contributed to over one-third of the broader market’s total equity returns, with the remaining two-thirds coming from capital appreciation.
This highlights how dividends have become increasingly important over the years. When considering inflation, dividends have outpaced it, suggesting that investors should focus on these stocks. A report by Wisdom Tree noted that from 1957 to 2023, dividends grew by an average of 5.7% annually, which is more than 2% higher than the inflation rate. The report also pointed out that in the last 64 years, dividends only declined in six years, and only once by more than 5%. In contrast, stock prices fell in 18 of those years, with the worst annual decline exceeding 40% and an average drop of over 11%. Stock prices were more than twice as volatile as the dividend cash flows, as short-term prices are more influenced by market sentiment, while long-term value is driven by cash flow stability.
Also read: 10 Highest Paying Monthly Dividend Stocks
When investing in dividend stocks, receiving payments more often is definitely a plus. Although most dividend stocks distribute payments to shareholders on a quarterly basis, there are a few hundred publicly traded companies that opt to pay dividends monthly instead. However, monthly dividend stocks have their downsides. While they offer appealing investment opportunities, their high yields can be misleading, often accompanied by multiple dividend cuts. The high yields are primarily due to the nature of the companies that opt for monthly payments, such as real estate investment trusts (REITs), closed-end funds, business development companies (BDCs), and royalty trusts, which are common among monthly dividend payers. That said, many monthly dividend companies have not only kept up their payouts over the years but have also increased them, all while maintaining high yields.
Once the risks associated with high yields are addressed, investors can concentrate on the benefits of compounding. Monthly dividend stocks provide cash to investors more frequently than other stocks, allowing them to reinvest it sooner and take advantage of faster compounding. Since 1960, 85% of the cumulative total return of the broader market Index can be traced back to reinvested dividends and the effects of compounding, as reported by Hartford Funds. With this, we will take a look at some of the best dividend stocks that offer monthly payouts.
Our Methodology:
For this list, we reviewed a list of companies providing monthly dividends to their shareholders. Among these, we specifically chose businesses with robust dividend practices, consistently maintaining their payouts across multiple years. The majority of these selected companies operate within the Real Estate Investment Trust (REIT) sector, as they are required to allocate 90% of their income towards dividends. From that list, we picked 10 stocks with the highest number of hedge fund investors, using Insider Monkey’s Q2 2024 database of 912 hedge funds and their holdings.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A vibrant high-tech office space, representing the company’s later stage investments.
Prospect Capital Corporation (NASDAQ:PSEC)
Number of Hedge Fund Holders: 6
Prospect Capital Corporation (NASDAQ:PSEC) is an American business development company (BDC) that invests in debt and equity in US middle market businesses across various industries, aiming to provide consistent and attractive returns to its shareholders. It is one of the largest and most established BDCs, with total assets amounting to $7.9 billion. Founded in 2004, the company has a history spanning 20 years, having invested through the Great Financial Crisis—a period many other BDCs, with much shorter histories, did not experience. It emphasizes downside protection, with 81% of its portfolio consisting of first lien, secured, or underlying secured assets. Over its two-decade history, the company has invested $20.9 billion across 423 investments, successfully exiting 303 of them.
Prospect Capital Corporation (NASDAQ:PSEC) has delivered stronger total returns than the median of publicly traded BDCs, measured by the 5-year total change in NAV plus dividends. The stock achieved a 38.7% total increase in NAV plus dividends over five years, slightly outperforming the 38.1% increase reported by the median publicly traded BDC. In its fiscal Q4 2024, the company reported a total investment income of $212.2 million, which fell by over 4% from the same period last year. However, it beat analysts’ estimates by $6.64 million.
Prospect Capital Corporation (NASDAQ:PSEC), one of the best dividend stocks, declared a monthly dividend of $0.06 per share on August 28. This was the company’s 85th consecutive monthly dividend payment. Since its inception, the company has paid an aggregate of $4.3 billion in cumulative distributions to all common shareholders. The stock offers a dividend yield of 14.34%, as of August 29.
At the end of Q2 2024, 6 hedge funds tracked by Insider Monkey held stakes in Prospect Capital Corporation (NASDAQ:PSEC), compared with 9 in the previous quarter. These stakes are valued at over $3.6 million. Among these hedge funds, McKinley Capital Management was the company’s leading stakeholder in Q2.
Overall PSEC ranks 10th on our list of the stocks that pay dividends monthly. While we acknowledge the potential PSEC as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PSEC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.