10 Mighty Monthly Dividend Stocks Paying Up to 15.9%

Monthly dividend stocks go above and beyond the norm, in more ways than one.

If you ever think you have it rough as an income investor, just look across the pond to Europe, where stock dividends often come only twice (in uneven amounts), even once per year. By comparison, we Americans have it pretty good—most of our dividend stocks pay regular, reliable payouts, and at a more frequent quarterly clip.

Still, if you’ve ever wished to yourself, “It would sure be nice to collect these dividends even more often” … well, wish no longer. While they’re not terribly common, American exchanges boast dozens of monthly dividend stocks. And better still? As a group, monthly dividend stocks tend to pay us more than your average income-producing equity.

Today, I’m going to talk about the virtues of companies that distribute their cash monthly. Then after that, I’ll introduce you to some of the best monthly dividend stocks you can find in 2026. Also, while there’s no rule mandating that monthly payers yield more than the average stock, they typically do—even the skimpiest yield on this list is roughly 4x what the S&P 500 currently offers, and the top payer yields almost 16%.

Editor’s Note: Tabular data presented in this article is up-to-date as of June 10, 2026.

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Disclaimer: This article does not constitute individualized investment advice. Individual securities, funds, and/or other investments appear for your consideration and not as personalized investment recommendations. Act at your own discretion.

Why Monthly Dividends?

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Monthly dividends, from a pure payout-schedule perspective, have a very clear appeal to retirees. But as I’ll show you, they benefit every kind of investor in some way.

We’re actually pretty lucky. In many parts of the world, it’s common to receive dividends only semiannually or even annually. U.S. companies typically distribute cash quarterly, which puts them ahead of virtually everyone else.

Still, they’re not paying during the same quarters. Different stocks have different schedules, with some paying in Jan/Apr/Jul/Oct, some in Feb/May/Aug/Nov, and some in Mar/Jun/Sep/Dec. And depending on how much you have invested in stocks with different schedules, you could be receiving your checks in uneven clumps, which makes them difficult to budget around.

But with monthly dividend stocks, if all goes well, you’re getting the same exact payout every month (with the occasional annual payout hike, to boot). That’s outstanding news to retirees. After all, they’re not working anymore—but they still have bills to pay, and bills still come monthly.

There’s also a tangible (albeit slight) benefit to investors of any age: quicker compounding.

When a company pays a dividend, you can choose to have it go straight to your account for use as you’d like … or you can immediately reinvest those dividends, which many people do when they’re not already retired.

Let’s say you buy $10,000 worth of shares in a stock with a 5% yield and hold it for 30 years. It never gains a dime, but you collect the same level of dividends the entire time.

• If that stock paid you quarterly, you’d end up with a balance of $44,402.13.
• If that stock paid you monthly, you’d end up with a balance of $44,677.44.

Sure, $275 isn’t world-changing, but more is still more. If nothing else, it’s a case for including a few of these income investments as part of a diversified portfolio.

The Importance of Dividends

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A dividend is a cash payment that a company makes to its shareholders. It’s an excellent additional source of investment return that complements price gains—and it means different things for different investors.

Dividend stocks (which commonly are value stocks, but can be growth stocks) are great ways to drive long-term performance of your portfolio. These companies pay a regular flow of their profits directly back to shareholders, meaning you receive some sort of return regardless of the ebb and flow of share prices.

Stocks that can both grow and pay dividends are the ultimate long-term stocks given just how much in additional returns they can generate over the long term.

The above image is a look at the return someone could expect if they received just the price returns from an S&P 500 over the past 25 years.

But What If I Reinvested My Dividends?

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Now look at the above chart to see how much better the return is when you factor in dividends had you had reinvested those dividends back into the S&P 500 (returns illustrated by an S&P 500-tracking ETF; note that expenses are included in performance).

The price return is a little more than 500%. The total return (price plus dividends) is almost 840%!

But dividends can mean something else entirely when you’ve reached retirement. Specifically, they can become a source of passive income.

When you retire, you no longer receive a regular paycheck from an employer. Instead, you have to rely on Social Security checks and whatever you’ve saved up for retirement. Investors typically withdraw money from their nest egg to pay the bills in retirement, but a steady stream of stock-dividend and bond-interest income can reduce how much of your investment accounts you have to draw down—keeping your nest egg better intact for longer.

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Which Stocks Pay Monthly?

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One last thing to know before I introduce my list of monthly dividend payers: They’re largely not what you’d consider “normal” stocks.

A “normal” stock is, say, an Apple (AAPL) or a General Electric (GE)—virtually always a plain-vanilla C corporation with no unusual rules or designations.

But for whatever reason, most monthly dividend stocks tend to involve companies with specialized structures, such as real estate investment trusts (REITs), master limited partnerships (MLPs), business development companies (BDCs), and royalty trusts. These businesses all have one thing in common: They’re mandated to pay out large percentages of their taxable income or cash flow back to shareholders—which come in the form of dividends (or dividend-esque “distributions”).

In general, all these special classes tend to deliver much higher yields than your average stock. That’s great for income hunters, but remember: Higher yields can often involve higher risk, or at least a bigger emphasis on income at the cost of lower price returns.

So today, I’m going to point you in the direction of monthly dividend-paying stocks that largely garner positive opinions from the Wall Street analyst set. Take a look and see which ones you’ll want to target for a closer look of your own.

Stocks are listed in order of dividend yield, from smallest to largest.

Related: The 13 Best Mutual Funds You Can Buy Right Now

10. Agree Realty

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• Industry: Commercial real estate
• Market capitalization: $9.0 billion
• Dividend yield: 4.2%

Let’s start with Agree Realty (ADC)—a commercial real estate operator that deals in a wide array of retail tenants. Grocery stores are the largest part of the annualized base rent mix, but at just 10%. Assets are spread out across numerous categories, including home improvement stores, convenience stores, tire and auto centers, pharmacies, even farm and rural supply stores.

Agree currently boasts more than 2,750 properties, representing 57.5 million square feet, across all 50 states. And it leases those properties out on a “net lease” basis. This means ADC’s leases are “net” of insurance, maintenance, and taxes. So whereas “normal” REITs would be responsible for all three items, in a net-lease situation, tenants such as Walmart (WMT), Tractor Supply (TSCO), Dollar General (DG), and Best Buy (BBY) take care of those costs separately. Agree Realty simply collects a rent check.

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This system results in much more stable, more predictable income for REITs—exactly what you want when you’re relying on a stock for income.

Sure, real estate broadly has been a minefield over the past decade, given the pain that e-commerce has caused traditional brick-and-mortar retailers. But not all retailers are built equally—many discretionary retailers operating malls might have been pelted, but many of the staples-goods retailers on Agree’s tenant list are doing just fine and paying steadily climbing rents. And those are the types of tenants Agree has built its business around.

“We believe the company is in a good position in terms of its cost of capital, liquidity, balance sheet, high-quality portfolio, and acquisition pipeline,” Stifel analysts say. “ADC is entrepreneurial and has created value and continues to create value across its three platforms and through its relationships. The company balances its growth objectives with careful management of credit risk and focuses on e-commerce and recession-resistant retail categories.”

“We believe the stock deserves a premium valuation for high proportion of investment-grade tenants, as well as its strong balance sheet with ample liquidity,” Truist Managing Director Michael Lewis (Buy) adds.

Agree Realty’s dividend program isn’t new, but it is a relative newbie among monthly dividend stocks—ADC started making more frequent payouts in 2021. Also, Agree has been improving the dividend on a semiannual basis since 2016.

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9. SmartStop Self Storage REIT

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• Industry: Self-storage real estate
• Market capitalization: $1.8 billion
• Dividend yield: 4.9%

SmartStop Self Storage REIT (SMA) is a self-storage REIT that owns and/or manages 460 properties representing 35 million square feet across the U.S. and Canada.

What’s attractive about self-storage? Well, it’s a business that can thrive in both up and down economies. When people have money to spend, they often spend it—sometimes to the point where they accumulate so much stuff, it no longer fits where they live, so they decide to stash it elsewhere. However, when times are tighter, people who are forced to downsize their living situation will often store many of their possessions in hopes that they’ll eventually be able to return to a larger place in time.

That doesn’t mean self-storage can’t go through its own hiccups—it can and is, in fact. But SmartStop currently looks like one of the most resilient players in the space.

Related: The Best Dividend Stocks: 10 Pro-Grade Income Picks for 2026

“SMA reported a small FFO beat but did not move the midpoint of [2026 guidance, consistent with self-storage REIT peers that reported 1Q26 results before it,” says Truist’s Lewis, who rates SmartStop at Buy. “However, SMA did adjust some underlying assumptions, including 25 bp lower operating expense growth (15 basis points better net operating income growth at the midpoint), slightly higher managed REIT EBITDA [earnings before interest, taxes, depreciation, and amortization], and slightly higher interest expense. It is forecasting the best FY26 same-store revenue growth and same-store net operating income growth in the group.”

SmartStop is one of the growthiest such businesses in North America, recently entering the top 10 largest operators in the U.S. And it’s also one of the newest REIT listings—its initial public offering (IPO) was in April 2025, so it has been on the public markets for just more than a year.

It does pay a monthly dividend … albeit in the oddest of fashions. SMA’s past 12 dividends have either been 13.59¢, 13.15¢, or 12.27¢, in no particular order. But it does add up to a 

As I write this, SMA now has 12 paid or pending dividends—four of them at 13.15¢ per share, seven at 13.59¢, and one at 12.27¢. This hasn’t come in some uniform order, either. But it does add up to an annualized yield of nearly 5%.

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8. Realty Income

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• Industry: Commercial real estate
• Market capitalization: $58.0 billion
• Dividend yield: 5.2%

Any roundup of the best monthly dividend stocks should include Realty Income (O), which literally bills itself as the “Monthly Dividend Company.”

No, really. They even registered the nickname.

Realty Income is a real estate investment trust focused on single-tenant commercial properties. It owns more than 15,500 properties in the U.S., U.K., and six other countries that are under long-term net-lease agreements. It currently boasts more than 1,700 different tenants—including 7-Eleven, Dollar General (DG), Walgreens (WBA), Wynn Resorts (WYNN), and Life Time Fitness (LTH)—across 92 widely varying industries.

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It’s a behemoth in the space, and it keeps getting bigger, both naturally and by acquisition. For instance, in 2021, it bought fellow net-lease REIT VEREIT. Then in 2024, it bought out another net-lease play, Spirit Realty Capital.

“O has been very active, acquiring both investment- and non-investment-grade assets,” say Stifel analysts, who call the stock a Buy. “The team tends to view its credit investments as a relationship driver. Crucially, they are able to provide loans to tenants or prospective tenants at the corporate level, secured by unencumbered pool of assets, at a yield higher than where the asset(s) trade. In other cases, sale-leasebacks can occur with corporations that have real estate but don’t get full credit for it in the public markets. Despite many such companies having strong credit ratings, these types of transactions are still value-additive.”

Morgan Stanley (Equal Weight, equivalent of Neutral) adds that “portfolio credit quality remains healthy—a necessity-based tenant mix anchored in grocery and convenience stores, the categories management views as most resilient through various economic cycles.”

Another reason Realty Income is a king among monthly dividend stocks? The dividends, of course. Realty Income doesn’t just offer a high yield above 5%—it has paid 672 consecutive monthly dividends and increased the payout for 115 consecutive quarters.

Related: 8 Low- and Minimum-Volatility ETFs for Peace of Mind

7. Healthpeak Properties

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• Industry: Health care/retirement real estate
• Market capitalization: $14.1 billion
• Dividend yield: 6.0%

Healthpeak Properties (DOC) is one of several REITs that’s uniquely positioned to benefit from America’s aging population. 

DOC is a real estate owner, operator, and developer that sits at the intersection of health care and retirement, with a roughly 700-property portfolio leased out to biopharmaceutical companies, physician group practices, health systems, medical device companies, retirement companies, and more. Nearly half of its portfolio income comes from outpatient medical facilities, another 35% is derived from labs, and the rest comes from senior housing.

Related: REITs vs Private Placements: An Investment Guide

That last business arm is why, although DOC has been well-regarded for some time, the stock could see at least some short-term volatility.

“Healthpeak recently announced plans to spin off its senior housing portfolio and to leverage the sale of stabilized medical buildings to invest in cost-effective lab buildings,” says Argus Research analyst Marie Ferguson, who recently downgraded the stock from Buy to Hold. “The REIT’s relatively small Continuing Care Retirement Communities (CCRC) segment depressed earnings postpandemic but has been strengthening. While we see that the strategy could eventually provide long-term fundamental growth, we expect 2026 and 2027 to be periods of readjustment. With potential negative year-over-year comparisons, the shares could also respond less than some larger peers to periods positive of sector rotation.”

At least for now, however, Wall Street remains generally bullish on the stock, with 10 Buys and eight Holds against no Sell calls.

As for the dividend? Healthpeak has paid distributions for years, but the monthly schedule is a newer development. In February 2025, the company approved its first dividend increase since 2016, and also announced it would be transitioning to a monthly distribution starting with the April 2025 payout. At current levels, DOC yields more than 7%.

Related: 15 Dividend Kings for Royally Resilient Income

6. EPR Properties

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• Industry: Experiential real estate
• Market capitalization: $4.6 billion
• Dividend yield: 6.1%

EPR Properties (EPR) might be responsible for one of your favorite places, and you just don’t know it yet.

Once known as Entertainment Properties Trust, EPR Properties is an “experiential” real estate firm whose locations are dedicated to helping you learn, stretch out, and play. This is a 335-property portfolio, leased out to 59 tenants in 42 states and Canada, that includes movie theaters, water parks, ski resorts, Andretti Karting & Games go-karting, TopGolf gamified driving ranges, golf courses, fitness studios, private schools, early childhood education centers, and more.

EPR is also growing its amusement-park roster.

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“In early April, EPR completed the acquisition of six attraction properties as part of its previously announced Six Flags portfolio acquisition comprised of seven attraction properties ($315 million total portfolio investment at an 8.0% cash cap rate). The remaining property is expected to close in [the second quarter],” say Stifel analysts, who rate EPR’s stock at Buy. “This progress marks a significant shift in pace and activity for the company as it’s now more on the offensive than we have seen in recent years.”

JPMorgan analysts, who rate the stock at Overweight (equivalent of Buy) lay out the strength of its most recent earnings: “On the tenant health side, it noted that its Eat & Play portfolio is performing in line with last year, Ski is seeing some gains due to geographic diversification, Education coverage remains strong, Fitness & Wellness is delivering solid performance, and theaters are seeing increased attendance.”

EPR has been paying and raising its monthly dividend for years. Most recently, in February, it announced a 5% bump higher to 31¢ per share, putting this monthly dividend stock at a yield north of 6%. 

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5. Gladstone Investment Corp.

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• Industry: BDC
• Market capitalization: $583.0 million
• Dividend yield: 10.3%*

Business development companies (BDCs) are specialized firms that provide capital for small- and midsized businesses. It’s a small niche in the public markets—only a few dozen trade on U.S. exchanges—but it’s also one of the highest-yield corners of Wall Street. That’s because, like REITs, they must distribute at least 90% of their income in the form of dividends in exchange for exemption from corporate income tax.

Gladstone Investment Corp. (GAIN) is a BDC that specializes in acquiring mature, lower-middle-market companies. It’s a bit narrow for a BDC, at just 29 companies, though those companies are spread across 20 states and Canada, and they represent 16 different industries. Its target companies generate between $4 million and $15 million in annual EBITDA, and boast strong management teams as well as attractive financial and operational fundamentals.

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Gladstone provides most if not all the equity and debt capital required to close transactions—a higher-risk but higher-return strategy than many other BDCs.

“GAIN’s equity participation in most of its portfolio companies allows it to participate in the upside if a company performs above expectations,” say Oppenheimer analysts Mitchel Penn and Andrew Denkler, who rate shares at Outperform. “This has contributed to GAIN’s relatively high [return on equity].”

However, owning both debt and equity is a higher-risk strategy than other BDCs pursue. Penn and Denkler add that the equity would also expose Gladstone to the first loss in a downturn.

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But investors should know that the yield isn’t quite what it seems. Gladstone pays a regular monthly dividend of 8¢ per year, then typically shells out a supplemental dividend once each year from the realized capital gains generated by equity stakes in successful exits. When that dividend gets paid, and how much it is, varies from year to year. In 2025, GAIN paid out 54¢ in June. The year before it was 54¢ in October. Based on the regular dividend and last year’s supplemental, GAIN yields 9.7%. But the regular by itself yields 6.2%.

* Gladstone Investment’s yield, based solely on its 8¢-per-month regular dividend, is 6.6%. However, it also pays the occasional special dividend as cash allows. A 54¢ special dividend paid in June brings its total yield up to 10.3%.

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4. Capital Southwest Corp.

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• Industry: BDC
• Market capitalization: $1.5 billion
• Dividend yield: 10.9%

Capital Southwest Corp. (CSWC) is another BDC, this one focusing on lower-middle-market companies with $3 million to $25 million of EBITDA. It primarily deals in first lien debt, which makes up 90% of the portfolio at fair value. Equity makes up 9%, and the remaining sliver is split between second-lien and subordinated debt.

This is a much wider portfolio than Gladstone Investment, at around 130 companies. It spreads its $2.1 billion in assets across a couple dozen industries, though most prominent at the moment are healthcare services, consumer services, media & marketing, and consumer products, all of which enjoy low double-digit weights.

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The company is coming off a strong final quarter of its fiscal 2026. Net investment income (NII) came in slightly higher than estimates. Non-accruals (loans in which the borrower has stopped making payments, and the lender has stopped recording interest income) declined to 1.1% of the portfolio at fair value, from 1.5% in the prior quarter. And almost 90% of its debt investments enjoyed the top “1” or “2” rating (out of 5) on Capital Southwest’s internal rating scale.

“We continue to expect [net asset value, or NAV] outperformance versus the group in future quarters due to CSWC’s internally managed model, moderate leverage, and top-quartile return on equity,” says B. Riley’s Adams (Buy).

Capital Southwest also uses a regular-and-supplemental dividend strategy, though it’s far more stable than GAIN’s. The company has been paying a 19.34¢ monthly dividend since it converted away from its quarterly schedule in 2025. But it also paid out 6¢ per share in supplemental distributions in each of the past six quarters. On its own, the regular dividend equates to a 9.8% yield. Add in the supplemental, and that percentage nears 11%.

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3. Ellington Financial

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• Industry: Mortgage real estate
• Market capitalization: $1.7 billion
• Dividend yield: 11.5%

Ellington Financial (EFC) is a mortgage real estate investment trust (mortgage REIT or mREIT, for short). It invests in residential and commercial mortgage loans, residential and commercial mortgage-backed securities (MBSes), consumer loans, asset-backed securities backed by consumer loans, and a number of other mortgage- and loan-related investments.

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Whereas your typical equity REIT owns and possibly operates physical real estate, an mREIT deals in “paper” real estate like the instruments I just mentioned. An mREIT will take out debt to purchase mortgages and related products, and their profit is the spread between what they’re paying on debt and what they’re earning in interest income from their mortgages—known as net interest margin.

It’s a difficult business—one that can be rocked by any number of things, including high and/or rising interest rates. Thus, Wall Street is bullish on just a handful of mREITs, Ellington among them.

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“We continue to believe a premium to book is warranted given the stable book value, growing mortgage banking businesses (Longbridge and Non-QM [LendSure]), and recent returns that have comfortably covered the dividend,” write Keefe, Bruyette & Woods analysts Bose George and Frankie Labetti (Outperform). “Management noted [Longbridge Financial, a reverse mortgage business] is driving profitability both through its ownership stake and through the steady flow of high-quality loans. We continue to expect strong performance from Longbridge and growth in its credit portfolio over time.”

Of note: In 2024, Ellington Financial reduced its monthly dividend from 15¢ per share to 13¢ as it absorbed the recent acquisition of another mREIT, Arlington Asset Investment Corp., and as Longbridge, a 2022 acquisition, worked on returning to profitability. Good news on the latter front: Longbridge has indeed returned to the black and actually looks attractive as some Baby Boomers choose to remain in their existing homes during retirement.

Meanwhile, the dividend has since stabilized, and EFC still boasts one of the largest yields among the best monthly dividend stocks covered here today.

Related: 8 Best-in-Class Bond Funds to Buy

2. Trinity Capital

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• Industry: BDC
• Market capitalization: $1.5 billion
• Dividend yield: 11.9%

Trinity Capital (TRIN) is another BDC, this one focused on high-growth companies. It provides senior secured term loans to institutionally backed tech companies and commercial-stage life science companies; secured term loans to PE-backed software companies; equipment finance; and asset-based lending to special purpose vehicles (SPVs).

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Its roughly 200 portfolio companies include the likes of launch service and spacecraft component provider Rocket Lab (RKLB), non-alcoholic craft brewer Athletic Brewing, and arthroplasty-focused medical device firm Shoulder Innovations.

B. Riley Securities analyst Sean-Paul Adams has a Buy rating on shares, citing the company’s investment-grade rating from Moody’s, SBIC fund approval, record origination levels and increased equipment finance vertical demand.

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“TRIN’s strong yield, originations momentum, and platform expansion provide meaningful near-term upside potential, in our view, with trends in Sponsor Finance volumes having a minimal impact on net origination growth,” he says. “Software exposure is under 10% of the portfolio, selectively underwritten only where the SaaS borrower has a defensible AI moat, insulating TRIN from sector software anxiety.”

In May, Trinity Capital recently released first-quarter results that exceeded analyst expectations. Net investment income was a penny per share better than in Q4 2025 and covered the dividend, and credit quality improved.

Trinity is one of the newest additions to our monthly dividend stocks. It has long demonstrated the necessary quality, but it only recently became a monthly dividend payer. In December 2025, the company announced the shift, which took effect in January with a 17¢-per-share monthly distribution.

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1. Dynex Capital

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• Industry: Mortgage real estate
• Market capitalization: $2.8 billion
• Dividend yield: 15.9%

Dynex Capital (DX) is the longest-tenured mREIT, founded in 1987. And it’s explicitly an “agency” mREIT, which means it deals in mortgages and MBSes from government agencies such as Freddie Mac and Fannie Mae. In fact, its portfolio is 97% agency residential MBSes (RMBSes), and most of the remainder is agency commercial MBSes (CMBSes).

Few analysts cover Dynex, which is typical for the mREIT industry. Still, among these few pros, the bulls are the majority.

Keefe, Bruyette and Woods, whose analysts rate Dynex at Outperform, was broadly bullish on agency MBS sectors heading into 2026. Agency MBS spreads tightened in the back half of 2025, but KBW believed spreads would benefit from a steeper yield curve as the Federal Reserve cut rates.

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The year hasn’t played out that way so far, but KBW still remains upbeat about DX.

“We still believe a modestly steepened yield curve and stable rate environment is a generally constructive backdrop for financials,” KBW wrote recently. “We … remain fairly constructive on agency MBS REITs and remain [outperform] on [Annaly Capital Management, NLY] and DX.”

Dynex pays the most generous monthly dividend on this list, at nearly 16% as I write this. But Dynex has hacked away its payout in the past—indeed, the dividend shrunk by 85% between 2012 and 2020, to 13¢ per share monthly. It remained there until mid-2024, when Dynex announced its first dividend raise in more than a decade—to 15¢ per share. It followed that up with another hike in 2025, to 17¢, as of its April payout.

That history is an important reminder that double-digit yields are hardly risk-free.

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What Is Dividend Yield?

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Dividend yield is a simple financial ratio that tells you the percentage of a company’s share price that is paid out across a year’s worth of dividend distributions. Expressed as a mathematical equation, it’s simply:

Dividend yield = annual dividend / price x 100

Yield helps dividend investors normalize dividend payments regardless of stock price, different quarterly payments, even different payment frequencies (like monthly or annually). For instance, each of the following fictional stocks all have a dividend yield of 2.5%:

• Alpha Corp. currently trades for $40 a share. It pays a 25¢ quarterly dividend, for $1.00 per year in full. ($1 / $40 x 100 = 2.5%)
• Beta Inc. pays $1 in the first quarter, $2 in Q2, $3 in Q3 and $4 in Q4. That’s $10 in dividends for the full year. It trades for $400 a share. ($10 / $400 x 100 = 2.5%)
• Gamma Ltd. pays $2.50 just once per year. It trades for $100 a share. ($2.50 / $100 x 100 = 2.5%)
• The idea is to focus on the percent of your initial investment you get back, and help you compare apples to apples.

Taking this math a step further, you learn that a company can suddenly feature a very high dividend yield through one of two very different ways: the share price falling very quickly, or the dividend growing very rapidly.

Alpha Corp., which trades for $40 per share, pays a 25¢ quarterly dividend that yields 2.5%. In a month, it yields 5.0%. Here are two ways that could have happened.

• Alpha Corp. doubled its dividend to 50¢ per share, for a full $2 per share across the year. The share price stays the same. ($2 / $40 x 100 = 5.0%)
• Alpha Corp. kept its dividend the same, but its share price plunged in half to $20 per share. ($1 / $20 x 100 = 5.0%)

Clearly, that 5% yield appears to be much safer and reliable in one scenario than the other.

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What Is a Payout Ratio?

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As with dividend yield, it’s important to normalize the dividend payout ratio for a stock. This is simply the percentage of a company’s earnings per share that is being distributed via dividends. It’s calculated as:

Payout ratio = dividends per share / earnings per share x 100

As an example, a stock that makes $100 million in profits and has 10 million shares of public stock has $10 in earnings per share. And if that company pays $5 annually in dividends, it has a payout ratio of 50% ($5 / $10 x 100 = 50%).

There’s a lot of “gray” when it comes to payout ratios. In general, though, the lower the payout ratio, the more sustainable the dividend, and the more room for future hikes.

Note: Payout ratio is calculated using different metrics depending on the type of business you’re looking at. For typical companies, you look at earnings. But, for example, when working with REITs, you typically calculate payout ratio using funds from operations (FFO), which is an important measure of REIT profitability.

What Is ‘Yield on Cost’?

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When you look up a stock’s information, the dividend yield listed is based on the most recent dividend and the current stock price.

That yield is often actually different than the one current shareholders enjoy. That yield is called “yield on cost,” which is the payout based on what you paid, at the moment you invested.

Let’s say you buy a stock at $100, and it pays $1 per share. It yields 1.0% when you buy it ($1 / $100 x 100 = 1.0%).

In a year, that stock has doubled to $200 per share, and it also doubled its dividend to $2 per share. If you look up its information, its dividend is still 1.0% ($2 / $200 x 100 = 1.0%).

That’s not your yield on cost, however. You’re still receiving that higher dividend of $2 per share. But your cost basis is still the original $100 you bought the share at. So now, your yield on cost has doubled, to 2.0% ($2 / $100 * 100 = 2.0%)!

Related: 11 Best Investment Opportunities for Accredited Investors

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Related: 15 Best Long-Term Stocks to Buy and Hold Forever

As even novice investors probably know, funds—whether they’re mutual funds or exchange-traded funds (ETFs)—are the simplest and easiest ways to invest in the stock market. But the best long-term stocks also offer many investors a way to stay “invested” intellectually—by following companies they believe in. They also provide investors with the potential for outperformance.

So if you’re looking for a starting point for your own portfolio, look no further. Check out our list of the best long-term stocks for buy-and-hold investors.

Related: Vanguard’s 7 Best Dividend Funds for Low-Cost Income

What’s better than a smart, sound dividend income strategy? How about a smart, sound dividend income strategy with very little money coming out of your pocket?

If that sounds good to you, you need look no farther than low-cost pioneer Vanguard, which offers up a number of payout-oriented products. Find out what you need to know in our list of seven top-notch Vanguard dividend funds.

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