Many companies pay out part of their profits to investors in the form of dividends. This allows their shareholders to generate some additional income every year.
Some companies Real pay their investors well. For example, AGNC investment(NASDAQ: AGNC), Energy transfer(NYSE:ET)And Trust medical properties(NYSE: MPW) currently offering dividend yields of 6.7% or higher. That is considerably more than the average dividend share (the S&P500‘S the dividend yield is currently around 1.2%). This allows an investor to turn a €5,000 investment into almost €500 in additional income next year:
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Monthly dividend share
Investment
Current return
Annual dividend income
AGNC investment
$1,666.67
14.9%
$249.00
Energy transfer
$1,666.67
6.7%
$112.00
Trust medical properties
$1,666.67
7.5%
$125.17
Total
$5,000.00
9.72%
$486.17
Data source: Google Finance. Table by author.
By comparison, that same $5,000 was invested in one S&P 500 index fund would generate only about $60 in revenue in 2025 at the current rate. Here we take a closer look at these income-generating stocks.
AGNC Investment is a real estate investment trust (REIT). It invests in residential mortgage-backed securities (M.B.S), swimming pools of mortgages protected against credit losses by government agencies such as 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 increase its investment returns by using leverage (borrowing money) to purchase 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 middle to high teens.
The Mortgage REIT has paid the current dividend rate for 55 consecutive months. It believes it can maintain that level in the future because market conditions are improving now that the Federal Reserve is lowering interest rates. While a sudden and unexpected deterioration in market conditions could negatively impact this REIT (the REIT has had to cut its dividend level in the past), it seems like a solid bet to generate a lot of income in the coming year.
Energy transfer is one master limited partnership (MLP), entities that their investors a Schedule K-1 federal tax form every year. It owns a diversified portfolio of midstream energy assets, including pipelines, processing plants and export facilities. These companies generate relatively stable cash flow, supported by long-term fixed-rate contracts or government-regulated rate structures.
The MLP distributes a little more than half of its free cash flow to investors. The remainder retains the land to finance expansion projects and maintain its financial flexibility. It has used that flexibility to make several acquisitions in recent years, including merging with fellow MLP Crestwood Equity Partners last year and recently striking a deal to buy WTG Midstream.
The company’s growth-oriented investments should boost cash flow. That should make energy transfer possible to steadily increase distribution. The goal is to grow the payout by about 3% to 5% annually. Therefore, it should provide investors with an increasing income stream in 2025 and beyond.
Medical Properties Trust is a REIT that focuses on owning hospitals. It rents these properties to healthcare companies that operate the facilities.
The healthcare REIT has faced some tenant issues in recent years, which have impacted its rental income. That forced the company to sell some other properties to strengthen the financial base. Meanwhile, the company recently agreed to replace its largest tenant with five new, financially stronger operators. Moreover, next year another large, financially troubled tenant should become healthier again. Because of these changes, the REIT will have a much healthier portfolio and financial profile move forward.
Medical Properties Trust expects rental income to increase steadily over the next two years as new tenants ramp up operations and rent payments. This means it could be done be ableincrease the dividend in 2025 after cutting its payout twice in recent years to preserve cash.
AGNC Investment, Energy Transfer and Medical Properties Trust currently pay highly productive dividends. Therefore, they can help an investor generate much more income for every dollar he invests. This trio is on track to pay lucrative revenue streams by 2025, with the potential for revenue growth from Energy Transfer and Medical Properties Trust.
Consider the following before buying shares in AGNC Investment Corp. buys:
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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.
Do you have $5000? Here’s how you can earn almost $500 in extra income by 2025. was originally published by The Motley Fool
