Retirees and other income investors should take a look at monthly dividend stocks. Some companies make annual or semi-annual dividend payments, which is often seen in European stocks. For US-based companies, quarterly dividend payments are the norm.

But some companies operate with monthly dividend payments, which is even more attractive from a reliable and regular income flow perspective. These 3 dividend stocks are among the highest yielding monthly dividend stocks right now.

Horizon Technology Finance (HRZN)

Horizon Technology Finance Corp. is a BDC (Business Development Company) seeking to provide venture capital to small and medium-sized companies, mainly in the life sciences, technology, sustainability, and healthcare-IT sectors, which account for around 45%, 39%, 12%, and 4% of its portfolio, respectively. 

The company has been able to generate attractive risk-adjusted returns through directly originated senior secured loans and additional capital appreciation through warrants, featuring a last-twelve-month annualized portfolio yield of 16.3%. 

On February 27th, 2024, Horizon released its Q4 and full-year results for the period ending December 31st, 2023. For the quarter, total investment income grew 21.8% year-over-year to $28.2 million, primarily due to growth in interest and fee income on investments resulting from an increase in the average size of the debt investment portfolio. The increase in interest rates was the main reason for the increase in interest income. Net investment income per share (IIS) rose to $0.45, up from $0.40 compared to Q4-2022. 

For the year, IIS/share reached a record of $1.98. Net asset value (NAV) per share landed at $9.71, 6.7% lower sequentially or 15.3% lower year-over-year. After paying its monthly distributions, Horizon's undistributed spillover income as of December 31st , 2023 was $1.25 per share, indicating a considerable cash cushion.

Horizon’s niche operations that require more unusual expertise in industries like biotech have maintained their higher ROIs amid a lack of cheap loans for such risky sectors, including early-stage tech companies. As its successful due diligence record has made possible, the company has maintained quite stable dividends, paid out monthly, providing smooth capital returns to its investors.

Ellington Financial (EFC)

Ellington Financial Inc. acquires and manages mortgage, consumer, corporate, and other related financial assets in the United States. The company acquires and manages residential mortgage-backed securities (RMBS) backed by prime jumbo, Alt-A, manufactured housing, and subprime residential mortgage loans. 

Additionally, it manages RMBS, for which the U.S. government guarantees the principal and interest payments. It also provides collateralized loan obligations, mortgage-related and non-mortgage-related derivatives, equity investments in mortgage originators and other strategic investments. 

On February 27th, 2024, Ellington Financial reported its Q4 results for the period ending December 31st, 2023. Due to the company's business model, Ellington doesn't report any revenues. Instead, it records only income. For the quarter, gross interest income came in at $98.7 million, up 2.6% quarter-over-quarter. Ellington's strong numbers from its residential transition loan portfolio and its Agency and non-agency MBS didn't offset dilution and expenses related to the merger with Arlington Asset and net losses from Longbridge and other positions, leading to a small negative economic return overall for the quarter. Adjusted (previously referred to as "core") EPS came in at $0.27, six cents lower versus Q3-2023. The decline was mainly due to higher professional fees. For the year, adjusted EPS came in at $2.52, but mostly due to asset sales. Ellington's book value per share fell from $14.33 to $13.83 during the last three months, with the dilutive merger ending up eroding value.

The company has diversified its portfolio and reduce its performance variance. For example, 88% of its RMBS exposure is allocated to 30-year fixed mortgages. Additionally, while around 77% of its credit portfolio is invested in residential mortgages, that 77% is split among many different securities types (non-QM, Reverse mortgages, Real-estate-owned loans etc.). The point is that Ellington has taken great care as of late not to concentrate its risk in too few areas, which improves economic return volatility.

Prospect Capital (PSEC)

Prospect Capital Corporation is a business development company, or BDC. It provides private debt and private equity to middle-market companies in the U.S. The company focuses on direct lending to owner-operated companies, as well as sponsor-backed transactions. Prospect invests primarily in first and second lien senior loans and mezzanine debt, with occasional equity investments. 

Prospect produces just under $900 million in annual revenue.

Prospect posted second quarter earnings on February 8th, 2024, and results were somewhat weak once again. Net investment income per share, which is akin to earnings-per-share for other companies, came to 24 cents. That was off three cents from the year-ago period. Total investment income, which is PSEC’s measure of revenue, was $211 million. That was down fractionally year-over-year from $213 million. 

Net asset value per share declined from the first quarter from $9.25 to $8.92. Total originations rose to $172 million for the quarter, which was up from $131 million in Q1. The company noted for the third quarter-to-date, originations were $63 million. Total repayments were $131 million in the quarter, up from $94 million in Q1. Total repayments to-date are $22 million, implying net originations of +$41 million so far in Q3.

Prospect has had additional trouble growing net investment income because its balance sheet has slowly grown smaller over time. The company’s total assets are ~$8 billion today, after having expanded rapidly in recent quarters.

The company’s payout ratio was over 100% for several years in the past decade but is slightly under that now given the higher NII-per-share. The dividend is covered by earnings for now, but we see a weak growth outlook as potentially threatening the dividend over time.