According to the Internal Revenue Service (IRS), passive income generally includes earnings from rental activity or any trade, business, or investment in which the individual does not materially participate. It can also include income from limited partnerships, stocks, bonds, and other similar enterprises in which the investor is not actively involved. The more passive income can help cover rising costs, such as mortgages, insurance, taxes, and other expenses, the easier it is for investors to set aside money for future needs as they prepare for retirement. Dependable, recurring dividends (especially those paid monthly) are a recipe for success.
We screened our 24/7 Wall St. monthly dividend stock list, looking for companies that pay massive, double-digit, ultra-high-yield dividends. Investing $25,000 in each of the four will generate over $1,050 in passive income every month. All four are for investors with a somewhat higher risk tolerance, and all four have a Buy rating from companies we cover on Wall Street. Share purchase amounts, dividends, and income paid are as of the time of this writing.
Why Do We Cover Ultra-High-Yield Dividend Stocks?
While these stocks are not suited for everybody, those trying to build strong passive income streams can do exceptionally well with these four top companies in their portfolios. Paired with more conservative blue-chip dividend giants, investors can use a barbell approach to generate substantial passive income.
AGNC Investment
AGNC Investment (NASDAQ: AGNC | AGNC Price Prediction) provides private capital to the U.S. housing market, enhancing liquidity in the residential real estate mortgage markets and, in turn, facilitating home ownership. This company has paid solid monthly dividends for years and currently yields 14.20%.
The company invests primarily in agency residential mortgage-backed securities (agency RMBS) on a leveraged basis. These investments consist of residential mortgage pass-through securities and collateralized mortgage obligations for which a U.S. government-sponsored enterprise guarantees the principal and interest payments.
AGNC buys debt from the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). Alternatively, AGNC may purchase debt from a U.S. government agency, such as the Government National Mortgage Association (Ginnie Mae).
$25,000 will buy 2,395 shares, which pay $2.56 per year, or $0.12 per month. That equals $3,449 per year, or $287.40 per month.
Capital Southwest
Based in Dallas, a hub of business activity, this is another top company that offers long-term growth and income potential, with a stellar 9.97% dividend yield. Capital Southwest (NASDAQ: CSWC) is an internally managed business development company (BDC).
The company is a market lending firm focused on supporting the acquisition and growth of middle-market businesses through investments across the capital structure, including first-lien, second-lien, and non-control equity co-investments.
It specializes in providing customized debt and equity financing to lower-middle-market companies across a broad range of investment segments, primarily in the United States. Its investment objective is to produce attractive risk-adjusted returns by generating current income from its debt investments and capital appreciation from its equity and equity-related investments.
The company invests primarily in first-lien debt securities, secured by security interests in portfolio company assets. It also invests in equity interests in its portfolio companies alongside its debt securities and offers managerial assistance to its portfolio companies.
$25,000 will buy 1,083 shares, which pay $2.51 per year, or $0.21 per month. That equals $2,718 per year, or $227.56 per month.
PennantPark
PennantPark Floating Rate Capital (NYSE: PFLT) invests in middle-market companies in the United States. Often overlooked by Wall Street, this BDC offers a substantial dividend yield of 15.40%, paid monthly. PennantPark seeks to invest in floating-rate loans through private, thinly traded, or small-cap public middle-market companies. It primarily invests in the United States, with limited exposure to non-U.S. companies. The fund typically invests between $2 million and $20 million.
The fund also invests in:
- Equity securities
- Preferred stock
- Common stock
- Warrants or options received in connection with debt investments or through direct investments
It primarily invests between $10 million and $50 million in senior secured loans and mezzanine debt. It seeks to invest in companies not rated by national rating agencies. The fund invests 30% in non-qualifying assets, such as:
- Investments in public companies whose securities are not thinly traded or do not have a market capitalization of less than $250 million
- Securities of middle-market companies located outside of the United States
- High-yield bonds
- Distressed debt
- Private equity
- Securities of public companies that are not thinly traded
- Investment companies as defined in the 1940 Act
Under normal conditions, the fund expects at least 80 percent of its net assets plus any borrowings for investment purposes to be invested in floating-rate loans and investments with similar economic characteristics, including cash equivalents invested in money market funds. It expects senior secured loans to represent 65 percent of its portfolio.
$25,000 will purchase 3,105 shares paying $0.99 per share, for a monthly payout of $0.0825 per share. That equals $256 each month.
Saratoga Investment
This is one of the absolute best BDCs, with a strong 13.50% dividend yield. Saratoga Investment (NYSE: SAR) is a specialty finance company that provides customized financing solutions to U.S. middle-market businesses.
The company invests primarily in senior and unitranche leveraged loans and mezzanine debt, and, to a lesser extent, in equity to provide financing for change-of-ownership transactions, strategic acquisitions, recapitalizations, and growth initiatives in partnership with business owners, management teams, and financial sponsors.
The investment objective is to create attractive risk-adjusted returns by generating current income and long-term capital appreciation from its debt and equity investments. The company’s portfolio is primarily composed of leveraged loans issued by middle-market companies. It also invests in mezzanine debt and makes equity investments in middle-market companies.
Saratoga Investment’s investment activities are externally managed and advised by Saratoga Investment Advisors.
$25,000 will purchase 1,118 shares at $3.00 per share, for a monthly payout of $0.25 per share. That equals $280 each month.
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