2 High-Yielding Monthly Dividend Stocks I'd Buy Before Adding AGNC Investment's Monster Dividend to My Portfolio

AGNC Investment (NASDAQ: AGNC) stands out among dividend stocks. The real estate investment trust (REIT) currently pays a monster dividend that yields 17%. That's more than 10 times higher than the S&P 500's 1.4% dividend yield. Even better, the REIT pays its dividend monthly instead of the quarterly schedule of most dividend stocks.

AGNC Investment has caught my attention, as someone who loves to collect passive income. However, I haven't added the REIT to my portfolio and probably won't buy shares anytime soon. Instead, I'd buy more shares of EPR Properties (NYSE: EPR) and Stag Industrial (NYSE: STAG) to boost my monthly dividend income before buying AGNC Investment. Here's why.

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A higher-risk, high-yielding dividend stock

AGNC Investment is a bit of a complex company. It invests in mortgage-backed securities protected against credit losses by government agencies such as Fannie Mae. That makes these mortgage pools very low-risk investments. They also have relatively low returns, paying a fixed interest rate typically in the low to mid-single digits.

Where things get complex is the mortgage REIT's strategy of using leverage to boost its returns. It does that primarily through repurchase agreements and dynamic risk management strategies aimed at protecting its portfolio from interest rates and other risks.

This strategy has enabled AGNC Investment to maintain its monster dividend for several years. While the REIT believes it can make enough money to continue paying its current dividend level, it's hard for investors to keep an eye on the safety of its dividend because its earnings don't drive its dividend policy. If the factors that drive its dividend change, which can happen abruptly if market conditions shift suddenly, the REIT might not be able to maintain its dividend. That has happened in the past, as AGNC Investment has cut its dividend several times over the years. Given the heightened risk of a future dividend cut, it's too risky for me.

An entertaining income stream

EPR Properties might not have a yield as high as AGNC Investment. However, at over 7%, it's much higher than most dividend stocks.

The fellow REIT has a much simpler business model. It invests in experiential real estate, such as movie theaters, eat and play venues, and other attractions, which it leases to tenants who operate the experiences. It primarily signs triple net leases, which provide it with stable rental income because tenants cover all operating costs, including routine maintenance, real estate taxes, and building insurance.

EPR Properties pays a much more sustainable monthly dividend. The REIT expects its dividend payout ratio to be around 70% of its cash flow this year. That gives it a big cushion while allowing it to retain meaningful excess free cash flow to fund new investments, which are expected to total $200 million to $300 million this year. Those new investments should grow its cash flow per share at a low-single-digit rate. That enables EPR Properties to steadily increase its dividend. It raised its payment by 3.5% this year.

A stable income stream

Stag Industrial's monthly dividend currently yields over 4.5%. That's a solid yield in today's environment, especially given the stability of the REIT's business model.

The company owns a diversified portfolio of industrial real estate that it leases to tenants. Those long-term leases provide Stag Industrial with stable income that rises at a low-single-digit annual rate through escalation clauses in its leases. The REIT pays out less than 75% of its stable cash flow in dividends.

That provides Stag Industrial with nearly $100 million in excess free cash flow each year to invest in additional income-generating industrial properties. The REIT also has a conservative financial profile, giving it additional flexibility to acquire more income-producing industrial properties. Stag plans to invest $350 million to $650 million in growing its portfolio this year. Those new investments and the rising rents from its existing properties position Stag Industrial to increase its dividend. The REIT has raised its payment every year since it went public in 2011.

Lower-risk ways to generate recurring passive income

AGNC Investment certainly offers an alluring dividend. However, the REIT has a higher-risk business model, which has caused it to cut its payout many times in the past. That's why I prefer investing in EPR Properties and Stag Industrial. They also pay high-yielding monthly dividends. The big difference is that they should be able to continue growing their payouts in the future, whereas AGNC might need to cut its payment again if market conditions take an unexpected turn for the worse.

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Matt DiLallo has positions in EPR Properties and Stag Industrial. The Motley Fool recommends EPR Properties and Stag Industrial. The Motley Fool has a disclosure policy.