These Monster Dividend Stocks Can Turn $1,000 Into Over $100 in Passive Income Each Year

Many companies pay dividends. However, some companies pay monster dividends. That's due to a combination of their structure and business model.

AGNC Investment (NASDAQ: AGNC), Annaly Capital Management (NYSE: NLY), and Delek Logistics Partners (NYSE: DKL) are monster dividend stocks, boasting yields above 10%. They could turn a $1,000 investment into over $100 of annual passive income at that rate. Here's a closer look at these big-time dividend stocks.

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A monster monthly income stream

AGNC Investment provides its investors with a prodigious passive income stream. The mortgage-focused real estate investment trust (REIT) currently has a more than 16% dividend yield. That's over 10 times higher than the S&P 500's dividend yield of less than 1.5%.

As a REIT, AGNC Investment needs to pay out at least 90% of its taxable net income in dividends, which is a big factor driving its monster yield. The company's business model also plays a role in its outsize yield. It invests in mortgage-backed securities (MBSes) backed by government agencies (e.g., Fannie Mae) on a leveraged basis.

Leverage can boost returns. For example, the company's CEO noted on its first-quarter earnings conference call that it can earn a return in the low 20% range by leveraging its portfolio in the current environment. That enables it to earn more than enough income to cover its operating expenses and monthly dividend payments. However, leverage can drag down returns when market conditions deteriorate. That has happened in the past, causing the REIT to cut its dividend quite a few times over the years.

Raising its already ridiculously high payout

Annaly Capital Management is also a mortgage REIT. Like AGNC, it invests in Agency MBS, which makes up the bulk of its investment portfolio. It also invests in non-agency residential mortgages like jumbo loans and mortgage servicing rights (MSRs). Residential credit investments have higher risk profiles and return potential, while MSRs are lower leveraged and less risky investments.

The REIT currently has a dividend yield approaching 15%. It recently gave investors a surprise dividend increase. It could afford to boost its payout because its earnings have improved. If that upward trajectory continues, Annaly could increase its payment again.

However, the opposite is also true. The REIT has had to cut its dividend payment several times in the past because of a decline in its earnings. That makes it a higher-risk, higher-reward income stock like AGNC.

Raising its payout like clockwork

Delek Logistics Partners is a master limited partnership (MLP). MLPs are pass-through entities that typically distribute much of their income to investors and consequently send their investors a Schedule K-1 Federal Tax Form each year.

Delek Logistics Partners currently provides its investors with a prodigious income stream that yields nearly 10.5%, the highest in the energy midstream sector. The MLP stands out from the two REITs on this list because it has steadily increased its distribution. It has raised its payout for 49 straight quarters and grown it by 3.7% over the past year.

The MLP's business model generates relatively stable cash flow backed by long-term contracts with its parent company, refiner Delek US Holdings, and third-party customers. It has been steadily reducing its reliance on Delek by growing its earnings from outside clients, from 41% in 2023 to 80% this year. Delek Logistics Partners grows its earnings by investing in expansion projects and making acquisitions. It recently closed its Gravity Water Midstream acquisition and started its Libby 2 processing plant. The MLP's growth-related investments help support its steadily rising distribution. It has a decent amount of financial flexibility, which should fuel its continued expansion.

Prodigious passive income streams

AGNC Investment, Annaly Capital Management, and Delek Logistics Partners have yields above 10%. That makes them very lucrative investments for generating passive income. However, higher risk profiles come with higher yields, evidenced by the prior payout cuts by AGNC and Annaly. Still, they're enticing options for investors seeking the potential of earning an outsize income stream and are comfortable with the possible risks of a future payout cut.

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Matt DiLallo has no position in any of the stocks mentioned. The Motley Fool recommends Delek Us. The Motley Fool has a disclosure policy.