The Safest High-Yield Monthly Dividend Stock You Can Buy Today

By Adam Galas

Americans are mad as hell.

Despite the best job market in 54 years…

Despite a stock market that’s soaring to the heavens…

And despite the average household’s net worth growing 37% in the past three years...

61% of Americans are terrified of running out of money.

And you might be one of them.

A July 2023 Lending Club survey found that three in five Americans have nothing left in their bank accounts after paying all the bills. And here’s why.

In 1971, a can of Coke cost 13 cents. Today, it costs $1. What used to cost $1 in 1971 now costs $7.73.

The value of the dollar has fallen 87%. And that’s with a Fed that’s supposed to ensure price stability.

Some politicians point to a strong job market as a sign of success. “There are 1.6 jobs for every worker who wants one,” they proclaim.

But ever since inflation hit its highest level in 42 years last year, many of us feel like we need to work two jobs and a side hustle just to make ends meet.

In the 1950s, a person could get a good-paying factory job straight out of high school. One income was enough for a house in the suburbs. It could buy the family a boat and pay for annual vacations. It could even put the kids through college.

Where one income was enough for millions of Americans to thrive in the 1950s, today some families struggle to get by with even five incomes.

That’s why even 40% of those making over $100,000 annually – only 15% of the population according to the U.S. Census – live paycheck to paycheck.

So if you feel like you’re struggling financially – and it’s gotten worse recently… You’re not alone.

And while that knowledge may not be enough to make you feel better, here’s something that will…

At Fortress Portfolio, we’re dedicated to helping you earn income that grows through inflation, recession, market volatility, and crashes.

With the power of this portfolio, you can make money while you sleep, reset your financial situation, and even cut your retirement wait time.

And this month, we’re highlighting a Fortress play that can help you pay your bills.

Now, our world-beater blue chips pay an average safe 7.5% yield. And the steady income they provide is wonderful.

But most of them have a quarterly distribution. And that’s not as helpful as a monthly dividend. After all, your utility bill and credit card payments are due monthly, not quarterly.

This is why monthly dividend stocks attract so many people. But oftentimes, that allure is dangerous…

Many monthly dividend payers promise 10% to 20% yields. What investors don’t realize, however, is the management teams behind them are only in it to enrich themselves. And that double-digit yield isn’t all it’s cracked up to be.

There are hundreds of monthly dividend stocks out there. And they are almost all toxic traps you must avoid if you want to retire in safety and splendor… or even retire at all.

So this month, I’ll tell you exactly which kinds of monthly dividend payers you should steer clear of. And highlight one Fortress Portfolio pick that is one of the few exceptions.

Its 6.7% yield is well-supported. And at today’s prices, it presents a 40% return opportunity.

There are three main kinds of monthly dividend stocks… And almost all are risky for retirement.

I won’t get into all the details here. But let me tell you a little bit why they tend to lure in investors looking for monthly income… and how they’re actually traps.

The first are residential mortgage real estate investment trusts (mREITs).

Unlike other REITs that own properties with long-term leases, mREITs don’t own actual properties. Instead, they own loan portfolios, making them more like financial companies.

They use leverage and a lot of borrowed money to try to make profits instead of collecting monthly rental checks. And since the loans within their portfolios change every few years, mREITs’ profits are unpredictable.

This makes their monthly revenue less dependable, and they often struggle to grow over time. For example, AGNC Investments, one of the oldest and largest mREITs, has cut its dividends seven times in 15 years. It’s down 61% since going public.

Another issue with mREITs is their long-term returns. Unlike our favorite kinds of dividend stocks, which can grow your initial investment, many mREITs struggle to do so. Using AGNC Investments as an example again, it’s seen a 68% drop in earnings since 2008.

mREITs have complicated structures, high fees, and very few even carry investment-grade ratings.

Not something we want in a reliable monthly dividend income stream.

Next are closed-end funds (CEFs).

CEFs may seem attractive with high yields, like 20%, but they often use accounting tricks. For a CEF to pay a 20% yield means it must earn 20% annual returns (post-tax) for the stock price to stay flat.

But let’s take Cornerstone Strategic Value, a CEF, as an example to show how that doesn’t work.

Cornerstone mirrors the S&P 500. As a refresher, owning the market has historically delivered 10% returns. All Cornerstone does is track. But the reason it touts 20% returns is because it takes in new investor money and pays it back as a “dividend.”

That’s why Cornerstone has seen an 87% drop in distributions since 1988. This means taking a big hit on your investment over time.

Even just buying the stock market is a better investment than a poorly managed monthly dividend payer like this. Don’t fall for the lure of a 20% yield when it’ll just burn you in the end.

And finally, there are royalty trusts.

Royalty Trusts tend to be the mineral rights to natural gas or oil deposits. When commodity prices are high, they can pay out massive distributions, and their yields can look like 25% to 50%. But of course, those payouts come crashing down or even stop entirely when commodity prices fall.

Royalty trusts are for trading not long-term investing, because of one fatal flaw that most income investors don’t realize. At some point, usually when the royalty income falls below a certain amount, they are liquidated.

That means all the assets are sold, and you get one final payout, and that’s it. They are not permanent entities like corporations that will theoretically last forever.

Royalty Trusts will do well in a commodity boom like 2021 and 2022, when their prices are most expensive. When it’s the worst possible time to buy them, right at the peak popularity and high price, is when some investors get sucked in.

And when they get liquidated, those losses can become permanent.

So… that leaves us with one question – what kind of monthly dividend payers are worth it?

We select our investments based on strict criteria and back-testing.

We want companies that pay out reliable and growing dividends. That way, even adjusting for inflation, you end up with more money than you started with.

And best of all, you can choose whether you want to reinvest your dividends. With the best monthly dividend payers, you can compound your returns through reinvestment every month – at a faster rate than compounding quarterly.

And if you want to use those monthly dividends to pay for bills or other items on your monthly budget, you can do that easily, knowing that the strength of the underlying company will keep your returns growing.

To me, that is the definition of a quality investment. Protect your principle, grow your principle, and live off the income. That’s the difference between retiring comfortably and never retiring at all.

There’s one more type of monthly dividend payer. There are dangers with this one as well, especially if you don’t select it carefully.

But we’ve found an investment within that category that passes all our safety tests with flying colors. It offers a 6.7% annual dividend yield. At today’s prices, that’s $0.24 hitting your account every month for every single share you own.

Not only does this add up over time – especially if you’re reinvesting – but the company is so strong, you can keep that consistent income rolling in for years.

Let me illustrate how by comparing it to one of its peers, one that could burn investors if they’re not careful about which stock to select…

There’s one final type of monthly dividend-paying stock. But it generally comes with its own set of pitfalls. Let me show you an example…

Business development companies (BDCs) are a special kind of finance company for private businesses.

Think of them as shadow banks, financing companies that regular banks don’t want to touch. That’s not because they’re bad companies, but mostly due to regulations around who can safely invest in small and mid-sized businesses.

In theory, they’re a great way for regular investors to profit from an asset class they normally wouldn’t have access to. Plus, similar to REITs, they must pay out at least 90% of their net income and capital gains to shareholders to maintain their tax benefits.

Many BDCs have annual dividend yields in or close to double digits. That’s the big reason income investors are drawn to them – especially those looking for monthly payouts.

But there’s one key feature separating the reliable, high-yielding BDCs we favor and the ones we must avoid at all costs. And that’s whether they’re externally managed or internally managed.

External management is like a hedge fund. Management doesn’t work for your corporation; they manage it for a fee.

You may have heard of the hedge fund “2 and 20” rule. That’s were management charges a fee of 2% of assets and 20% of profits above a certain hurdle rate. In today’s world, hedge fund fees are starting to decline, though they still average 5% per year.

But in BDCs, the good old days never ended. Base management fees average 1.5% to 2% per year plus 20% of all profits above a hurdle rate of 7% to 8%.

Oh, but it gets worse. They also charge 20% of profits on the capital gains on the loans themselves if they ever sell them at a profit.

That’s a third level of fees that not even hedge funds charged their clients.

But wait… It gets even worse. While not every externally managed BDC is terrible, most do poorly for investors for another fundamental reason.

Imagine you get paid 2% of the assets you manage every year. What is the easiest way for you to double your income? Double the assets you manage! That’s what externally managed BDCs often do.

They take on extra debt (leverage) and sell new shares, diluting existing investors. Management gets rich. But earnings, dividends, and share price all suffer.

Prospect Capital (PSEC) is the hallmark of a legal BDC run for the glory and riches of management at the investor's expense. John Barry, who founded it, made $100 million in 2013 and 2014, in years when management was paid $350 million.

We know this only because of in-depth investigations and conversations with insiders and whistleblowers. Externally managed BDCs don’t have to tell you how much executives get paid. It’s none of your business, as far as most of them are concerned.

You’re just the company’s owner, but they run it like a personal fiefdom earning as much as $50 million per year while investors get screwed.

In 2013 and 2014, Prospect’s stock price fell 24%, and including dividends, investors lost 3%. Yet the CEO made $100 million. Does that sound like a fair deal?

Sure, management didn’t do anything illegal, and it paid a seemingly attractive 12% yield monthly. But that all changed. Since its IPO in 2008, Prospect has had four dividend cuts total an 85% dividend decrease.

Now you can see why it’s important to be careful when it comes to monthly dividend payers, especially BDCs.

But one of our favorites checks all our boxes for safety and transparency…

Everything wrong with Prospect, which is usually also wrong with most BDCs (though not nearly as bad) is right with Main Street Capital (MAIN).

It’s the anti-evil BDC, and the only one I would ever recommend.

Take a look at a summary table comparing Main Street to Prospect Capital since 2009 to see why this is a BDC you can trust.

Internal management means that Main Street’s executives work directly for you, the shareholder. You know exactly how much they make and vote on the board that oversees management’s pay.

CEO Dwayne Hyzak is a co-founder of Main Street. He’s been there since the start in 2007, going through the entire Great Recession. Today, he makes $7 million per year in total pay. His salary in 2022 was $657,500, his bonus was $3,1750,000, and he got $3,229,975 in stock in 2022.

And we know from SEC documents that John Barry, CEO of Prospect owns $73 million worth of Prospect stock, compared to $336 million for Hyzak.

How’s that for eating your own cooking? Main Street’s CEO earns about 7 times less than Prospect’s CEO. He also owns five times more shares and delivered six times better returns for investors over the last 14 years.

So, what makes Main Street so special? The quality and safety king of this industry? And the highest-yielding monthly dividend stock you can buy?

(Source: Main Street Capital factsheet)

Main Street’s claim to fame is that it’s never cut its monthly dividend. Not in the Great Recession, not in the Pandemic.

Even mighty Ares Capital, the titan of the industry at an $11 billion market cap (2X bigger than its nearest rival), had to cut its dividend twice in the Great Recession.

Avoiding dividend cuts is important because it’s how you grow wealth year after year. Just take a look at the difference in returns between companies that cut their dividends and those that grow it…

Remember how Main Street’s CEO gets paid $7 million per year? Well, his dividends from the $336 million in stock he owns pay him $23.5 million per year. It makes sense that he’d be more interested in raising a dividend that he personally owes 77% of his total income to than anything else.

Main Street has run circles around its peers since its IPO 17 years ago. No one even comes close. It’s a founder-led company run on safety and quality first, prudent valuation and sound risk management always.

Here are the total returns for Main Street compared to the market and its peers since IPO to June 2023.

Yes, the BDC industry has lost money, including those “generous” dividends, for the last 16 years. Meanwhile, Main Street’s dedication to running a business with integrity for the benefit of shareholders has tripled the S&P 500’s returns.

(Source: Main Street Capital factsheet)

Main Street’s portfolio consists of 195 conservative loans across every part of the economy.

The single biggest loan is 4% of total income and 3.1% of the portfolio. Just nine loans have gone bad. And they represent just 0.3% of the portfolio. If those loans are a complete loss, Main Street will lose just 1.7% of its total capital.

Main Street was born in the fires of the Great Financial Crisis. It had to be conservative and safe. And the co-founder and CEO had to put his own money on the line along with shareholders. And that’s why Main Street has flourished while the average BDC has lost half its value, including dividends.

There are two secrets to Main Street’s ability to make such profitable and safe loans.

First, its CEO is a financial wizard. In fact, he started out as an auditor, so he knows how to do deep dives on a company’s book. When he makes a loan, it’s because he knows he and shareholders are getting compensated correctly for the risk.

He also takes equity ownership in most of the companies Main Street lends to. If you select the right stocks, their returns are always better than bond returns in the long-term. And that’s also true for BDCs.

99% of its loans are first lien, meaning that in the event of bankruptcy, Main Street is first in line to get repaid. And the average stock ownership in a company it lends to is 40%.

That’s about twice the equity ownership that Mark Cuban takes on Shark Tank.

The average yield on a Main Street loan is 12.9% thanks to today’s high rates.

So imagine being an investor on Shark Tank. You can get 40% of a great company and debt paying you 13% per year. That’s what you can get with Main Street. It’s all thanks to its exceptional management and reputation for working with its borrowers as true partners.

The reason Main Street can stay safe and still be so profitable is its cost advantage. Remember, its peers are charging such high fees that their operating expenses are 2.6% of assets.

Even commercial banks are usually paying 2.5% of assets in expenses. Main Street is at 1% and 1.4% including stock options.

When your costs are almost 50% lower than your rivals, you can make more profitable investments while taking on less risk.

And remember that, adjusted for inflation, Main Street’s peers are down 73% over the last 16 years. Main Street’s up 890%.

There is one other component of Main Street’s success that none of its rivals can match… its premium valuation.

I mentioned that BDCs sell shares over time. That’s because it’s part of the business model, just like REITs and utilities. Equity is an important source of growth funding.

Most BDCs will trade around book value, or the net value of all their loans. If the price-to-book value is under 1, then selling shares is dilutive and destructive to per share metrics, thus hurting long-term returns and dividend safety.

If the stock price is above book value, then it’s like minting free money.

For example, Prospect Capital’s 13-year median price-to-book value is 0.73. It usually trades at a 27% discount to net asset value because investors know management is out for itself and is destroying shareholder value if it enriches the CEO.

So when Prospect sells new shares (to grow assets so the CEO can get a raise), it’s selling $1 in value for $0.73. When Prospect tries to grow through selling stock, it’s usually lighting shareholder money on fire.

Meanwhile, Main Street’s 13-year median price-to-book value is 1.56. That means that when it sells stock to raise growth funding, it’s selling $1 in value for $1.56 and minting $0.56 in free money.

In the last 13 years, Main Street’s price-to-book value has ranged from 0.99 to 1.8, with 1.56 being the median value.

That’s much higher than any other BDC. And that smart, shareholder-oriented leadership is what makes Main Street my favorite monthly dividend stock in the sector.

Here’s a brief overview of where I rank Main Street stock’s safety…

But you don’t have to wait 10 years to earn amazing returns… Here is how much you can earn each year if Main Street grows as analysts expect and returns to historical fair value.

Despite consensus estimates and our own calculations, there’s always a chance that something could go wrong. So let’s assess the potential risks that could crop up when buying Main Street.

BDCs are economically cyclical, and that will never change no matter how amazing the CEO or management team is.

During the Pandemic and Great Recession, Main Street’s earnings fell by 20% each time. For context, Prospect Capital’s earnings fell 42% in the Great Recession.

This is expected to be a mild recession, and MAIN’s earnings are expected to decline just 8%. Main Street’s dividend payout ratio is expected to peak at 92% in the recession, compared to 95%, which is considered safe for this industry.

However, should the worst-case scenario happen, and the Fed loses control of inflation, then a severe recession becomes likely sometime in 2025 or 2026.

Jamie Dimon, CEO of JPMorgan warns that his personal worst-case scenario is the Fed has to hike interest rates to 7% and hold rates there for a year to tame inflation. For context, Bridgewater, the largest hedge fund in the world, estimates that the Fed hiking to 6% will cause a severe recession.

In that scenario, Main Street’s earnings would likely fall 20%, just as they normally do in a severe recession. In that outcome, the payout ratio rises to 116% and Main Street would have to use up its surplus profits. Thankfully, it has those stored away for such a scenario.

However, the most recent inflation and economic data indicates this worst-case scenario is highly unlikely.

Bottom line… Main Street is the safest high-yield monthly dividend stock you can buy today.

Action to Take: Buy Main Street Capital (MAIN)Buy-up-to Price: $57.23 per sharePosition Sizing: 4.4% of your Fortress Portfolio. Or up to 7.5% in an individual portfolio.Risk Management: 30% hard stop loss from your point of entry ($28.15 for our tracking purposes)

This month I wanted to address a question I’m sure some of you have about how interest rates will affect our pipeline stocks.

Are these going to trade like utilities? Or energy stocks?

To answer that, let’s consider the year-to-date total returns of our pipeline picks so far:

Oneok has been storming higher as the uncertainty surrounding its Magellan acquisition fades. Remember, we initially recommended Magellan, but sold shares and bought Oneok instead after the company announced it was taking it over.

Oneok just got approval from Magellan unitholders to buy it in an $18 billion deal, the second biggest in industry history.

TC Energy is suffering due to a perfect storm of uncertainty surrounding a slightly harsher regulatory environment in Canada. Specifically, it reported the costs of its Coastal GasLink project would be $5.8 billion higher than previously expected.

Another thing that investors might be fretting over is the steadily rising carbon taxes in Canada, which are $29 per ton today and expected to rise to $125 by 2030.

TC Energy is going to spin off its legacy oil pipeline business, which is expected to see 2% long-term growth and become an ultra-yield stock. The new TC Energy will be gas and renewable focused. Management believes it can grow at 7% long-term, 5% faster without the legacy business dragging it down.

In other words, TC Energy is following Enbridge, its major peer in Canada and planning for the next few decades. In fact, the bond market is willing to buy TC Energy bonds maturing in 2081. That means the world’s most risk-averse investors agree with our model that management’s plan to transition beyond oil to a green energy future will succeed.

With TC Energy yielding an incredibly safe 8.1% yield and a 1.65% risk of a dividend cut, that 7% growth guidance from management means a long-term return potential of 15.1%. That’s on par with the greatest investors in history. And in the short-term, TC Energy’s 30% discount means 65% potential upside by the end of 2025. That’s 25% annualized return potential for the next two years.

Brookfield Renewable has also had a pretty terrible year. That’s likely due to interest rates soaring at the fastest rate in over 20 years and the fact that the entire yieldco (renewable energy utility) industry is in a massive bear market right now.

Yieldcos are relatively new, with most launching during the era of free money. They tend to use high leverage, specifically a business model called non-recourse self-amortizing debt. It’s basically a commercial mortgage on every individual project.

But it leads to higher debt than most regular utilities. As a result, all yieldcos but one are junk-bond rated. And junk-bond interest rates are currently 9% and climbing.

But Brookfield isn’t just some yieldco. It’s the oldest and largest in the world. It started in 1999 when interest rates were 6% and its CEO has seen rates as high as 8%.

Brookfield Renewable is BBB+ stable rated, the only investment-grade yieldco.

Management even just reiterated its previous guidance of 7% to 12% organic growth with up to 9% additional growth from acquisition potential.

In fact, Brookfield is continuing to successfully raise money. And it can do that even when rates are soaring because it has almost $100 billion in commitments from the world’s richest investors. Its investors have signed legal contracts requiring them to give Brookfield money when it says it has a good investment opportunity.

So while the yieldco industry is reeling from worries about access to low-cost capital… Brookfield is swimming in cash. That’s why I’m not worried about it’s recent decline.

In fact, our model estimates that even if interest rates of 5% were to remain forever, Brookfield Renewable would still be able to grow about 10% long-term. It yields 5.7% today, so you’re looking at 15% to 16% long-term returns on top of the significant boost from valuation returning to fair value.

Through the end of 2025, our model estimates Brookfield growing as expected and returning to historical fair value would generate 85% total returns or 32% per year.

That’s Buffett-like return potential from a high-yield blue-chip bargain hiding in plain sight.

(Source: Gurufocus Premium)

I welcome your questions and will try to answer as many as I can in the weekly update videos and these monthly newsletters.

Just remember, I can’t give individual investment advice. But I can supply information and general guidance for the average investor. Write in with your questions here.

Safe investing,

Adam Galas Chief analyst, Fortress Portfolio