Want $500 in annual dividend income? Invest $4,100 in these 2 ultra-high yielding dividend stocks.

People looking for a way to increase their passive income stream have plenty of options, but many require more capital than the average investor can manage. Fortunately, there are some ultra-high yielding dividend stocks that almost anyone can afford.

AGNC Capital (AGNC 0.49%) and PennantPark Floating Rate Capital (PFLT 1.34%) it offers an average yield of about 12.4% at recent prices. That means an investment of about $4,100 spread evenly between them is more than enough to add $500 annually to your passive income stream.

These two ultra-high yielding dividend payers may not increase their payouts significantly in the coming years, but there’s a good chance they can maintain their current payouts. Here’s what you should know before adding them to an income-generating portfolio.

1. AGNC Capital

AGNC Capital is a real estate investment trust (REIT) that does not own much real estate. Instead, it invests in mortgage-backed securities (MBS) that tend to pay higher interest rates than its cost of capital.

At recent prices, the stock is yielding 14.1%. Stocks generally don’t offer double-digit yields unless investors are worried about a dividend cut. The mortgage REIT industry can get complicated, but it’s not hard to see why this company is making those who rely on steady dividend payments nervous. Since switching from quarterly to monthly dividend payments in 2014, it has quadrupled its payout.

AGNC data by YCharts

Many investors began to fear another dividend cut might be around the corner when the company reported a loss of $0.12 per share in the second quarter.

Knowing AGNC’s history, most investors are right to be cautious. However, for those with a strong tolerance for risk, now could be a great time to buy mREIT shares. The industry has been under pressure since interest rates rose in 2022, but the Federal Reserve may soon begin cutting interest rates in response to signs of a cooling economy.

Relatively volatile interest rates have increased short-term borrowing costs for AGNC. If these trends reverse as expected, its MBS portfolio will be considered much more valuable than it is today. It’s far from guaranteed, but there’s a chance this mREIT can quickly reverse its recent losses and maintain its current dividend commitment for years to come.

2. PennantPark Variable Rate Capital

PennantPark Floating Rate Capital is a business development company (BDC). That means it’s essentially a bank that makes high-interest loans to mid-sized businesses that can’t get regular banks to answer their calls.

Like AGNC, PennantPark Floating Rate Capital pays dividends every month. At recent prices, the stock is yielding 10.8%, which is probably more reliable than any mortgage REIT.

American banks have been increasingly reluctant to lend to mid-sized businesses for decades. That means well-established BDCs like PennantPark Floating Rate Capital have their pick when looking for borrowers that reliably generate enough cash to repay their debt.

The average yield PennantPark received from borrowers reached 12.1% in the second fiscal quarter, which ended June 30. That might seem too big to be safe, but this BDC is focused on producing a steady stream of income. About 87% of its portfolio is senior secured debt, which is first in line to be repaid if a borrower files for bankruptcy.

PFLT data by YCharts

With a brief exception in 2018, PennantPark Floating Rate Capital has raised or maintained its dividend payout since it began paying one in 2011. Thanks to expert underwriting, investors can look forward to many more years of stability.

As the name suggests, this BDC makes portfolio companies borrow at variable rates. Interest rates have been relatively high for several years, but only three portfolio companies, representing 1.5% of the total portfolio at cost, were non-accrual at the end of June.

The Federal Reserve is expected to lower interest rates before the end of the year, which will make it even easier for this BDC’s borrowers to keep up with their interest payments. This stock doesn’t offer as high a yield as AGNC Capital, but it’s a great option for most income-seeking investors.