Dynex Capital Inc: This 8.4% Yielder Pays Investors Monthly

DX stock

A Monthly Dividend Stock to Think About

Under the current low-interest-rate environment, a dividend yield of more than eight percent certainly stands out. What’s even rarer, though, is an eight-percent-plus yielder that also pays investors monthly.

Every income investor would like to earn as high a yield as possible—if the payout is safe, of course. What’s less talked about is the frequency of the payout. These days, most dividend stocks follow quarterly distribution schedules, while most of our bills have to be paid monthly. So if you want to live off dividends, you need to carefully balance quarterly dividends with monthly expenses. With monthly dividend stocks, budgeting is much easier.

One monthly dividend stock worth investigating is Dynex Capital Inc (NYSE:DX), a real estate investment trust (REIT) headquartered in Glen Allen, VA. The company is internally managed and invests in mortgage loans and securities on a leveraged basis.

It’s very easy to see why Dynex Capital stock might be special: it currently has a monthly dividend rate of $0.13 per share. With DX stock trading at $18.65 per share, that monthly payout translates to an annual yield of 8.4%.

Of course, given the amounts that most other companies are paying, a monthly dividend stock that pays more than eight percent can seem too good to be true.

I’m not saying Dynex Capital stock is the perfect income stock; the company has cut back its payout before. For instance, at the beginning of 2020, the REIT had a monthly dividend rate of $0.15 per share. Due to the impacts of the COVID-19 pandemic, management reduced the monthly payout by $0.02 to $0.13 per share in June 2020. (Source: “Dividends,” Dynex Capital Inc, last accessed July 2, 2021.)

That said, the company was able to afford its new payout level and has maintained it to this day.

In 2020, Dynex Capital earned core net operating income of $1.94 per share. During the year, the board declared 12 monthly dividends totaling $1.66 per share. So, DX stock’s payout was covered. (Source: “Dynex Capital, Inc. Reports Fourth Quarter and 2020 Full Year Results,” Dynex Capital Inc, February 4, 2021.)

In the first quarter of 2021, the mortgage REIT’s core net operating income came in at $0.46 per share. Considering that Dynex Capital declared three monthly dividends totaling $0.39 per share during the quarter, the company outearned its payout once again. (Source: “Dynex Capital, Inc. Reports First Quarter 2021 Results,” Dynex Capital Inc, April 28, 2021.)

It’s worth noting that the company has been moving away from agency commercial mortgage-backed securities (CMBSs) to agency residential mortgage-backed securities (RMBSs).

At the end of 2019, Dynex Capital had 51% of its portfolio invested in agency RMBSs, 39% invested in agency CMBSs, and 10% in other investments. By the end of March 2021, the share of agency RMBSs in the REIT’s portfolio had increased to 88%. (Source: “First Quarter 2021 Earnings Presentation,” Dynex Capital Inc, April 28, 2021.)

Given how badly the commercial real estate sector has been hit by the pandemic, Dynex Capital’s transition to the residential side of the business has certainly been a good move.

Will Dynex Capital Inc Increase Its Payout?

In Dynex Capital Inc’s first-quarter earnings conference call, one analyst asked whether the company’s dividend will go up, considering the company’s strong coverage, recently.

In response, Dynex Capital’s chief executive officer and co-chief investment officer, Byron Boston, said, “What we don’t want to do is attempt to pay a dividend that is not in line with our macroeconomic outlook. Right now we’re in a very uncertain economic environment. The world is evolving still. I know we’re like 15 months since the whole pandemic started but the fact of the matter is this is still an evolving health crisis.” (Source: “Dynex Capital, Inc. (DX) CEO Byron Boston on Q1 2021 Results – Earnings Call Transcript,” Seeking Alpha, April 28, 2021.)

In other words, considering the still-uncertain economic outlook, Dynex Capital stock likely won’t raise its dividend anytime soon. Then again, in today’s market environment, I doubt any income investor would complain if an 8.4%-yielding monthly dividend stock can simply maintain its current level of payout.

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