It’s not exactly market alchemy to reveal that investors love income. The best kind of income, however, come from dividend stocks that pay on a monthly basis, so you can reinvest the cash right back into the market and watch your money grow.
While bills are due monthly, most companies pay dividends quarterly. Few stocks pay monthly dividends and fewer still generate enough cash to pay their dividends from only profits.
Moreover, most stocks in this category consistently pay out more in dividends than they earn in net income. This happens by design with royalty trusts in the energy industry. However, many times paying out more than is taken in is not by design. Many stocks in this category often rely on debt issuance, asset sales or accounting tricks to meet debt obligations. Investors who depend on these equities for income typically want more stability.
However, a few stocks have been able to pay sustainable dividends while still delivering a high monthly return for stockholders. All are either real estate investment trusts (REITs) or business development companies (BDCs). Both of these stock types are required to pay at least 90% of their income in dividends to avoid income tax. Hence, some level of dividend income remains reliable.
With that in mind, here are five dividend stocks to buy that meet these narrow criteria:
Dividend Stocks to Buy: Chatham Lodging Trust (CLDT)
Dividend yield: 5.8%
Chatham Lodging Trust (NYSE:CLDT) serves as a hotel REIT specializing in upscale, extended stay properties in high-growth markets. Among its assets are Marriott Courtyard, Hilton Garden Inn and Residence Inn hotels across the U.S.
Since instituting a dividend cut in late 2012, CLDT stock has established a five-year track record of dividend increases. The current monthly dividend of 11-cents-per-share has been in effect since March 2016.
The stock price has experienced an overall uptrend since it hit a low in the $9-per-share range in 2011. Although the stock remains below the $31-per-share peak hit in 2015, it has been stuck in a trading range for about two years.
However, with a growing dividend currently paying close to 6%, investors are well-paid while they wait for growth to resume.
Dividend Stocks to Buy: Gladstone Investment Corporation (GAIN)
Dividend yield: 7%
Gladstone Investment Corporation (NASDAQ:GAIN) serves private businesses by providing debt and equity financing. This business development company (BDC) provides senior term loans, senior subordinated loans and junior subordinated debt. The firm also invests in preferred and common equity in these same type of firms.
Dividends have generally risen since 2010. Payments of monthly dividends amount to 6.5-cents-per-share, though the company paid an additional 6-cents-per-share dividend twice this year. The stock spent several years in the $7-$8-per-share range since it briefly fell to a low $2.26-per-share in March 2009.
GAIN stock experienced an uptrend over the last two years and today it stands near $11-per-share, not far from its 52-week high. Despite this rise, the current price-to-earnings ratio stands at about 8 times earnings.
Dividend Stocks to Buy: Main Street Capital Corporation (MAIN)
Dividend yield: 5.7%
Main Street Capital Corporation (NYSE:MAIN) acts as a provider of debt and equity financing for lower middle-market and middle-market companies. By providing this financing, this BDC creates an avenue by which companies can grow or transition ownership.
Aside from paying a sustainable dividend, MAIN stock has generally increased its dividend over time. The exception occurred in 2014 when the dividend fell from $2.04 to $2-per-share. The equity pays 19-cents-per-share in monthly dividends currently, though two special dividends of 27.5-cents-per-share were added in the last year.
Moreover, the MAIN stock price has also maintained an upward trend for several years. Like most stocks, it took a hit during the 2007-09 financial crisis. Since 2008, the stock has risen from under $8.50-per-share to the $40-per-share range today.
Dividend Stocks to Buy: Pennantpark Floating Rate Capital Ltd (PFLT)
Dividend yield: 8.25%
Pennantpark Floating Rate Capital Ltd (NASDAQ:PFLT) is a BDC who partners with middle-market companies to provide capital. PFLT works on a partnership approach. They operate on the core belief that middle-market lending provides great opportunities for high returns.
Those high returns have been reflected in the dividend of PFLT stock. Since introducing its dividend in 2011, increases have occurred every year until this year where it has remained the same. Monthly dividends amount to 9.5-cents-per-share.
The PFLT stock price has shown more stability. Since going public in 2011, the stock has stayed in a range of $10-15-per-share. It currently trades at just under $14-per-share. This places the P/E ratio at about 11.5. Although profits will likely not increase substantially for the foreseeable future, a consistent 8.25% return will remain attractive to many investors.
Dividend Stocks to Buy: Stellus Capital Investment Corp (SCM)
Dividend yield: 10.75%
Stellus Capital Investment Corp (NYSE:SCM), like many of the other recommended income vehicles, SCM is a BDC specializing in investments to middle-market private companies. The firm has $1.5 billion in assets under management. It specializes in private credit and energy private equity.
SCM stock launched its IPO in 2012 at $15-per-share. Like with other companies tied to energy, the 2014 price slump hit its interests hard. The stock lost half its value by 2016. Although the price now stands at around $12-per-share, it remains below its original price of five years ago.
However, despite the stagnant stock price, SCM stock pays an attractive dividend. Since early 2014, the firm has paid monthly dividends of 11.3-cents-per-share. Moreover, the stock’s P/E stands at about 7.5. With energy prices at their highest levels since prices fell three years ago, the equity could be poised to move higher.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.