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Want $6,000 in Annual Dividend Income? Invest $64,200 in These 3 High-Yield Stocks.

Motley Fool - Wed Jul 5, 2023

If you want to turn your savings into an income stream, there are a lot of options. You could buy homes or other property to rent, but this leaves you responsible for maintenance, taxes, and perhaps a mortgage.

If you want an income stream that's truly passive, it's hard to do better than dividend-paying stocks. That said, not every stock that pays dividends can raise its payout over time.

These three stocks stand out because they offer unusually high yields at the moment. There's also a good chance that they'll be able to raise their dividend payouts year after year.

Frustrated investor making calculations.

Image source: Getty Images.

1. Physicians Realty Trust: A 6.6% yield

As its name implies, Physicians Realty Trust(NYSE: DOC) is a real estate investment trust (REIT) that specializes in medical office buildings (MOBs). REITs in general make great investment vehicles for income-seeking investors because they can avoid paying income taxes as long as they distribute at least 90% of their profits to shareholders as a dividend.

Right now, you can secure $2,000 in annual dividend income from Physicians Realty Trust with an investment of around $30,400 up front. Funds from operations, a proxy for earnings used to measure a REIT's performance, reached $0.24 per share, which is just enough to maintain a quarterly dividend payout set at $0.23 per share.

The COVID-19 pandemic upended the usual flow of patients through the outpatient facilities Physicians Reality Trust owns. Looking ahead, this REIT's property portfolio appears destined to deliver rising profits. In 2021, U.S. healthcare spending reached a stunning $4.3 trillion, and this figure is expected to outpace the overall economy and grow at a rate of 5.4% annually through 2031.

Overall healthcare expenses being on the rise aren't the only trend benefiting this REIT. It selectively invests in outpatient facilities, which are growing in popularity, while time spent at inpatient facilities has steadily dropped.

2. Medical Properties Trust: A 12.5% yield

Medical Properties Trust(NYSE: MPW) is a REIT that owns hundreds of hospitals in the U.S. and abroad. Right now, an investment of around $16,000 is all it takes to secure $2,000 in annual dividend income from this stock.

Utilization of outpatient facilities is growing faster than inpatient facilities, but hospital expenditures are still on the rise. In 2021, hospital expenditures in the U.S. climbed 4.4% to reach $1.3 trillion.

Medical Properties Trust gets hospital operators to sign net leases that transfer responsibility for variable expenses like taxes and maintenance to the tenant. This makes cash flows super reliable, as long as tenants keep paying rent.

The stock offers a huge yield right now because its third-largest tenant, Prospect Medical, didn't pay rent in the first quarter. This probably isn't as big a problem as it seems. Prospect received new financing in May that will likely result in it resuming payments before the end of 2023.

3. PennantPark Floating Rate Capital: An 11.2% yield

PennantPark Floating Rate Capital(NYSE: PFLT) is a business development company (BDC), which is another type of entity that can avoid paying taxes by distributing nearly all its profits to shareholders as a dividend. Right now, an investment of just $17,800 is enough to line up $2,000 of annual dividend income from this stock.

BDCs exist because big banks generally aren't willing to make commercial loans to midsized businesses. As its name implies, this BDC strongly prefers making variable interest rate loans. It also prefers lending to companies with established private-equity sponsors.

This stock offers a big yield right now because investors are concerned that its borrowers won't be able to keep up with loan payments that have grown a great deal in a short amount of time. The fear seems overblown compared to the BDC's performance. There were four companies representing 2% of the total portfolio at cost on nonaccrual status at the end of March.

Investors will want to keep an eye open for more unpaid loans, but for now, it looks like PennantPark Floating Rate Capital's dividend is going to be just fine.

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Cory Renauer has positions in Medical Properties Trust. The Motley Fool recommends Physicians Realty Trust. The Motley Fool has a disclosure policy.

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