GLAD Stock: Collect Monthly Dividends from This 8.9% Yielder
1 Top Monthly Dividend Stock for Income Investors
Suppose you are looking for a job and one company gives you an offer with the condition that you will only be paid every three months. Would you do it?
If you have other offers with a similar salary, chances are you’d reject this one and accept the one with a biweekly pay schedule. The reason is simple: your bills are due every month. It would take some serious budgeting to match your expenses with quarterly paychecks.
Unfortunately, many income investors have to take the first company’s offer. This is because in today’s market, most dividend-paying stocks distribute on a quarterly basis.
The payout is not that great, either. The average dividend yield of S&P 500 companies right now is a measly 1.9%.
The company I’m about to show you, on the other hand, offers an annual yield of 8.9%. Moreover, its dividends are paid monthly, so investors don’t have to wait three months for a dividend check.
I’m looking at Gladstone Capital Corporation (NASDAQ:GLAD), a business development company (BDC) based in McLean, Virginia.
Monthly Dividends Backed By a Solid Business
Gladstone Capital was founded in 2001, with a special focus on providing capital to small- and medium-sized businesses in the U.S. These businesses typically have earnings before interest, tax, depreciation, and amortization (EBITDA) of between $3.0 million and $15.0 million.
Of course, small- and medium-sized businesses could carry more risk than large, blue chip companies. But note that the core business of Gladstone Capital is making loans to these companies, but not investing in their equity.
As a matter of fact, approximately 94% of Gladstone Capital’s investment portfolio is made up of secured loans. In other words, when Gladstone lent out the money, the borrowers have pledged some assets as collateral for the loans. (Source: “Financial and Portfolio Overview for the Fiscal Quarter Ended June 30, 2017,” Gladstone Capital Corporation, last accessed August 18, 2017.)
Moreover, about half of the company’s portfolio are invested in first lien loans. This means if a borrower defaults, all the other lenders will have to wait until Gladstone Capital gets paid in full.
With the majority of its portfolio invested in senior, secured loans, Gladstone adds stability to its cash flow.
The portfolio is also diversified. As of June 30, 2017, Gladstone has investments in 47 companies coming from 22 different industries.
The return is pretty good, too. As of the end of the second quarter, the company’s loan portfolio has an average annual yield of 11.5%.
As a business development company, Gladstone Capital operates under the regulated investment company tax structure. This means the company must distribute at least 90% of its profits to shareholders every year. In return, the company does not have to pay any tax at the corporate level. This allows Gladstone to pass its profits directly to investors.
Right now, the company pays monthly dividends of $0.07 per share. At today’s price, that translates to a handsome annual dividend yield of 8.9%.
For investors looking for something to boost their monthly income, Gladstone Capital is a name worth checking out.