Many companies return a portion of their profits to investors in dividends. That enables their shareholders to generate some extra income each year.
Some companies really pay their investors well. For example, AGNC Investment(NASDAQ: AGNC), Energy Transfer(NYSE: ET), and Medical Properties Trust(NYSE: MPW) currently offer dividend yields of 6.7% or higher. That’s significantly more than the average dividend stock (the S&P 500‘s dividend yield is currently around 1.2%). Because of that, an investor can turn a $5,000 investment into nearly $500 of extra income next year:
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Monthly Dividend Stock
Investment
Current Yield
Annual Dividend Income
AGNC Investment
$1,666.67
14.9%
$249.00
Energy Transfer
$1,666.67
6.7%
$112.00
Medical Properties Trust
$1,666.67
7.5%
$125.17
Total
$5,000.00
9.72%
$486.17
Data source: Google Finance. Table by author.
For comparison, that same $5,000 invested in an S&P 500 index fund would only produce about $60 of income in 2025 at the current rate. Here’s a closer look at these income-producing stocks.
AGNC Investment is a real estate investment trust (REIT). It invests in agency residential mortgage-backed securities (MBS), pools of mortgages protected against credit losses by government agencies like Fannie Mae or Freddie Mac. That makes them very low-risk fixed-income investments.
MBS also have relatively low returns (low-to-mid single digits). AGNC Investments can boost its investment return by using leverage (borrowing money) to buy additional MBS. It makes money on the spread between where it borrows money and its MBS investments. This strategy can be very lucrative. AGNC Investment is currently earning a return on equity in the mid-to-high teens.
The mortgage REIT has paid its current dividend rate for 55 consecutive months. It believes it can maintain that level in the future because market conditions are improving as the Federal Reserve reduces interest rates. While a sudden and unexpected deterioration in market conditions could negatively impact this REIT (it has had to reduce its dividend level in the past), it looks like a solid bet to generate a lot of income in the coming year.
Energy Transfer is a master limited partnership (MLP), entities that send their investors a Schedule K-1 federal tax form each year. It owns a diversified portfolio of energy midstream assets, including pipelines, processing plants, and export facilities. These businesses generate relatively stable cash flow backed by long-term, fixed-rate contracts or government-regulated rate structures.
The MLP distributes a little more than half its free cash flow to investors. It retains the rest to fund expansion projects and maintain its financial flexibility. It has used that flexibility to make several accretive acquisitions in recent years, including merging with fellow MLP Crestwood Equity Partners last year and recently closing a deal to buy WTG Midstream.
The company’s growth-focused investments should increase its cash flow. That should allow Energy Transfer to steadily raise its distribution. It aims to grow its payout by around 3% to 5% annually. Because of that, it should supply investors with a rising income stream in 2025 and beyond.
Medical Properties Trust is a REIT focused on owning hospitals. It leases these properties to healthcare companies that operate the facilities.
The healthcare REIT has encountered some tenant issues in recent years, impacting its rental income. That forced the company to sell some other properties to shore up its financial foundation. Meanwhile, it recently agreed to replace its largest tenant with five new, financially stronger operators. On top of that, another large, financially troubled tenant should start getting healthier again next year. Because of these changes, the REIT will have a much healthier portfolio and financial profile going forward.
Medical Properties Trust expects its rental income to rise steadily over the next two years as its new tenants ramp up their operations and rental payments. This means it could be able toincrease its dividend in 2025 after cutting the payout twice in recent years to preserve cash.
AGNC Investment, Energy Transfer, and Medical Properties Trust currently pay high-yielding dividends. Because of that, they can help an investor generate a lot more income for every dollar they invest. This trio is on track to pay lucrative income streams in 2025, with the potential for income growth from Energy Transfer and Medical Properties Trust.
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Matt DiLallo has positions in Energy Transfer and Medical Properties Trust. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
