Best Dividend Stocks for Yearly Passive Income

In the enduring search for passive streams of income, many investors have turned to dividend-paying stocks. While equities carry inherent risks, companies that consistently share profits with shareholders can provide regular payouts that compound over time. Though past performance does not guarantee future returns, analyzing dividend track records can help identify firms likely to maintain distributions through diverse market environments.

This article explores two high dividend yield stocks – one an established residential mortgage real estate investment trust (REIT), the other an aspiring exploration and production master limited partnership (MLP) formed in the prolific Anadarko Basin. Despite recent distribution cuts, both offer double-digit yields that could potentially throw off thousands in annual passive income given sufficient capital allocation.

Resetting Expectations for a Stalwart Mortgage REIT

Armour Residential REIT (ARR) has long been a favorite among income investors, delivering substantial dividends through shifting interest rate cycles. The company’s portfolio consists primarily of government-sponsored enterprise and agency mortgage-backed securities tied to residential home loans. By operating as a REIT, Armour avoids corporate taxes, with rules requiring high distribution of taxable income to shareholders.

Armour has paid monthly dividends reliably since its 2008 IPO. But the Federal Reserve’s dramatic moves to tame inflation with aggressive rate hikes has increased pressure on the REIT’s fixed income holdings. In December 2022, management announced a 40% distribution cut to $0.24 per share. Yet even after this reduction, based on the current stock price near $18, Armour still offers an almost 15% forward dividend yield.

For context, large REIT index funds and ETFs target yields ranging from around 3-4% – less than a third of Armour’s revised rewards. And during previous turbulent stretches like the Great Financial Crisis when the Fed similarly raised rates, Armour continued making payouts.

If an investor put $20,000 into ARR stock today, they would lock in entitlement to around $3,200 per year in passive income. That comes through $800 per month, not counting any potential stock price gains. While unlikely to satiate those seeking abundant growth, for passive income oriented investors, it demonstrates the impressive cash generation ability even after Armour’s latest cut.

Betting on a Pedigreed Team and Rich Resource Basin

Whereas Armour provides income security, Mach Natural Resources (MNR) pursues outsized rewards. Formed in 2021 by legendary wildcatter Tom Ward, Mach controls over 1 million acres in Oklahoma’s and Kansas’ hydrocarbon-prolific Anadarko Basin. The company plans to pay substantial distributions in line with MLP peers while exploiting its large footprint through drilling and acquisitions.

Mach estimates its initial annualized dividend will equate to a 16% yield based on the IPO share price. While undoubtedly lofty if achieved, Ward has pedigree and potent resources to back his ambitions. Previously co-founding shale pioneer Chesapeake Energy, Ward aims to consolidate smaller operators as natural gas and oil prices drive renewed activity. Mach’s existing low-decline production affords capital flexibility, with the business targeting a modest 30% cash reinvestment rate to fuel expansion.

Admittedly, Mach’s 14-month operating history makes judging sustainability difficult. And as with Armour, macroeconomic trends and commodity market volatility could upend plans. Still, Raymond James analysts strike an optimistic tone, and Wall Street generally remains bullish on Ward’s track record.

Again assuming a $20,000 position, an investor would lock in rights to an estimated $3,630 in annual dividends. That comes to $300 per month for essentially passive exposure to Anadarko oil and gas fields through a pedigreed leadership group.

Concluding Thoughts

Dividend stocks carry unique risks, including distributions cuts that dramatically reduce expected yields. But companies like Armour and Mach with lengthy records and tangible asset bases have enduring means to support payouts. In bear and bull cycles, reliable dividends compound, serving as pillars of passive income streams.

With $20,000 and a reasonable tolerance to withstand volatility, an investor could feasibly secure perpetual quarterly payouts rivaling average monthly Social Security checks. This illuminates dividends’ role in diversified portfolios – providing ongoing cash inflows to supplement other growth or defensive strategies. Especially for retirees and income-needy households, stocks like these merit consideration.

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