Buying stocks that reward investors for owning them is a great way to supplement your income
“The rent is too damn high!” That was the campaign slogan of New York City mayoral candidate Jimmy McMillan in 2010. At the time, the average rent in the city was $1,216 per month, 27% higher than the $955 a month national average.
Some 13 years later, the situation dramatically deteriorated. Median rents in Manhattan at the end of last year was $4,457 per month, a 366% increase in 13 years! That works out to a 10.5% compounded annual growth rate (CAGR). Nationally, median rent is $1,317 per month, a 2.5% CAGR.
Regardless of whether you live in Gotham or anywhere else in the country, the fact remains, the rent is still too damn high.
But what if you could get help cracking that monthly nut by investing? Dividend growth stocks offer not only capital appreciation but the chance to get paid for owning the stock. A carefully crafted portfolio of high-yield dividend stocks that regularly increase their payout could be a way to supplement your income to help make ends meet.
Wellington Management found that stocks paying high yields — but not the highest — outperformed all other stocks over the 92 years between 1930 and 2022. The three high-yield dividend stocks below should be a part of your portfolio and could help you pay your bills, too.
Realty Income (O)
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Arguably one of the best high-yield dividend stocks you could buy is real estate investment trust (REIT) Realty Income (NYSE:O). It typically invests in single-tenant commercial real estate on a triple-net lease basis. That means the tenant, not the REIT, pays the rent, insurance, maintenance and taxes on the property, which keeps Realty Income a low-cost operator.
Like all REITs, Realty Income is required to pay out almost all of its profits as dividends. It is fairly unique, though, as it is one of a relative handful of REITs that pay dividends monthly. In fact, it was the one who pioneered the practice and has dubbed itself “The Monthly Dividend Company.”
Realty Income’s dividend yields 6.2% annually. Since listing on the NYSE in 1994, O stock has made 124 monthly dividend payments and it just raised its payout again. It now pays 25.7 cents per share every month, or $3.08 per share per year. That marks the 106th consecutive quarterly increase in the dividend and represents the 645th consecutive monthly dividend in Realty Income’s 55-year operating history.
Gladstone Investment (GAIN)
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The second stock to buy to help pay your bills is Gladstone Investment (NASDAQ:GAIN), which also happens to pay its dividend monthly. The payout is currently yielding 6.4% annually. Unlike Realty Income which invests in real estate, Gladstone invests in businesses. It is a business development company (BDC) that takes an equity position in the companies rather than simply making loans to them as many other BDCs do. The companies it takes equity stakes in are typically lower-middle market businesses.
GLAD stock targets having 25% of its portfolio as equity investments while the typical BDC targets 5% to 10%. Although that arguably makes Gladstone somewhat riskier because it can rise and fall on how well its investments are performing, its dividend is based upon the loan portion of its portfolio, not the equity portion.
In addition to Gladstone’s regular monthly payments it usually pays investors a supplement distribution twice a year. The amount tends to be based on the success of the investments they subsequently exit. Those supplemental distributions can vary but GLAD stock’s monthly dividend has grown for 11 consecutive years.
AT&T (T)
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The last stock to add to your portfolio to help make ends meet is AT&T (NYSE:T). It pays its dividend in the more common quarterly fashion and it currently yields 6.3% annually. Although it’s stock is down 6% over the past year, the telecom giant has made great strides in that time and has climbed 18% in the last six months.
Ma Bell’s stock was wrecked last year after The Wall Street Journal alleged the company was at risk from buried lead-lined cables that leached into surrounding groundwater. AT&T disputes the allegations and says independent experts show the cables are not a risk. Investors panicked, though, and sent shares reeling to a level not seen in 30 years.
But note: Ma Bell just announced it was hit by a massive data breach and tens of millions of sensitive customer records were stolen. At the moment T stock trades at 7 times next year’s earnings and a bargain-basement 6 times the free cash flow it generates, but it might go a lot lower real quick because of the hack.
In the long run it won’t matter. Companies bounce back from these events. Just use it as an opportunity to buy in at an even greater discount. AT&T stock will still provide substantial growth and income to investors for many years to come.
On the date of publication, Rich Duprey held a LONG position in O and T stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.