Annaly Capital Management (NYSE: NLY) pays one whopper of a dividend. The company's payout currently clocks in at an eye-popping 16.4% yield. That's multiples above the S&P 500's dividend yield, which is currently 1.7%. 

As tempting as that big-time payout might be, investors seeking a monster yield should first consider Medical Properties Trust (NYSE: MPW). That real estate investment trust's (REIT) 10.4% dividend yield is a lower-risk option than Annaly's massive payout.

Annaly's business model plays a big role in its outsized dividend yield. The company operates as a mortgage REIT. It uses a combination of equity and debt to purchase residential mortgages primarily backed by government agencies. It makes money through what's known as the net interest margin, the difference between the average yield on interest-earning assets and its average economic cost of funds. The company can make a lot of money on this spread. Meanwhile, because it's a REIT, Annaly must distribute 90% of its taxable net income to investors via dividends to comply with IRS regulations.

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Source Fool.com