Retirees and other income investors should take a look at monthly dividend stocks. Some companies make annual or semi-annual dividend payments, which is oftentimes seen in European stocks. For U.S.-based companies, quarterly dividend payments are the norm.
But some companies operate with monthly dividend payments, which is even more attractive from a reliable and regular income flow perspective.
These 3 dividend stocks have high yields, in addition to their frequent monthly payouts.
Regular Income Is on the Horizon
Horizon Technology Finance Corp. (HRZN) is a BDC (Business Development Company) seeking to provide venture capital to small and medium-sized companies, mainly in the life sciences, technology, sustainability, and healthcare-IT sectors, which account for around 45%, 39%, 12%, and 4% of its portfolio, respectively.
The company has been able to generate attractive risk-adjusted returns through directly originated senior secured loans and additional capital appreciation through warrants, featuring a last-12-month annualized portfolio yield of 16.3%.
On August 1, Horizon released its Q2 results for the period ending June 30, 2023. For the quarter, total investment income grew 51.3% year over year to $28.1 million, primarily due to growth in interest income on investments resulting from a rise in the average size of the debt investment portfolio and an increase in the base rate for most of the company's variable rate debt investments. The latter was driven by rising interest rates.
Net investment income per share (IIS) rose to $0.54, roughly 54% higher compared to Q2 2022. Net asset value (NAV) per share landed at $11.07, 2.4% lower sequentially or 5.3% lower year over year.
After paying its monthly distributions, Horizon's undistributed spillover income as of June 30 was $1.02 per share, indicating a considerable cash cushion. Management reassured investors of dividend stability going forward by declaring its three forward monthly dividends at a rate of $0.11.
Horizon's niche operations that require more unusual expertise in industries like biotech have maintained their higher ROIs amid a lack of cheap loans for such risky sectors, including early-stage tech companies. As its successful due diligence record has made possible, the company has maintained quite stable dividends, paid out monthly, providing smooth capital returns to its investors.
HRZN shares yield 11.2%.
A Yield Close to 14%
Ellington Financial Inc. (EFC) acquires and manages mortgage, consumer, corporate, and other related financial assets in the United States. The company acquires and manages residential mortgage-backed securities (RMBS) backed by prime jumbo, Alt-A, manufactured housing, and subprime residential mortgage loans.
Additionally, it manages RMBS, for which the U.S. government guarantees the principal and interest payments. It also provides collateralized loan obligations, mortgage-related and non-mortgage-related derivatives, equity investments in mortgage originators and other strategic investments.
On August 7, Ellington reported its Q2 results for the period ending June 30, 2023. Due to the company's business model, Ellington doesn't report any revenues. Instead, it records only income. For the quarter, gross interest income came in at $88.1 million, up 1% quarter over quarter. Adjusted (previously referred to as "core") EPS came in at $0.38, seven cents lower versus Q1 2023. The decline was mainly due to higher professional fees.
Ellington's book value per share fell from $15.10 to $14.70 during the last three months, with its dividends exceeding the underlying income. The monthly dividend remains at $0.15, nonetheless. Management commented that as they continue to rotate the portfolio into higher reinvestment yields, dividend coverage should resume.
The company has diversified its portfolio and reduce its performance variance. For example, 86% of its RMBS exposure is allocated to 30-year fixed mortgages. Additionally, while around 70% of its credit portfolio is invested in residential mortgages, that 70% is split among many different securities types (non-QM, Reverse mortgages, Real-estate-owned loans etc.). The point is that Ellington has taken great care as of late not to concentrate its risk in too few areas.
The company's balance sheet has improved lately as well, despite Ellington's recourse debt-to-equity ratio adjusted for unsettled purchases and sales rising from 2.0 to 2.1 in Q2 as the result of a smaller investment portfolio, an increase in unencumbered assets, and an increase in total equity.
EFC shares yield 13.7%.
Get Glad About It
Gladstone Capital (GLAD) is a business development company that is currently valued at $350 million. Business development companies organize financing for small and medium-sized businesses that can't access debt markets directly. Gladstone Capital does primarily make debt investments, which make up around 90% of its assets, but the company also holds small equity stakes in some of its portfolio companies.
Since the smaller businesses that are financed by Gladstone Capital and other business development companies have a hard time getting financing elsewhere, BDCs generally generate above-average interest rates from their investments.
Gladstone posted third-quarter earnings on July 26, and results were ahead of expectations on both the top and bottom lines. Net investment income per share was 31 cents, which was four cents better than expected. Total investment income was $22.8 million, up 66% year over year, which was $1.15 million better than estimates. The increase in investment income was due to higher interest income, which was attributable to increases in the weighted average yield and weighted average principal balance of the company's interest-bearing investments.
The yields on the company's portfolio influence its ability to earn income and therefore, cover its expenses and pay distributions to shareholders. Over time, the company's portfolio yield has drifted higher to 10%+. Despite the cost of funding rising as well, Gladstone has managed to increase its yield spreads. Gladstone's portfolio continues to grow in dollar terms, and the higher spreads on a larger portfolio is leading to earnings growth.
Gladstone cut its distribution for this reason in Q2 2020, but we believe the current dividend is sustainable. NII is once again moving higher, and we see the payout as sustainable currently, particularly with strong recent earnings results supporting NII. The most recent increase is seen as a vote of confidence from management.
GLAD shares yield 10.0%
