12 Best Monthly Dividend Stocks and Funds For 2021

reason to invest in dividend stocks

Monthly dividend stocks have their set of die-hard supporters. The main reason perhaps remains common across this group, that of creating a regular income stream the frequency of which is aligned to the frequency at which expenses generally occur, like payment of bills, which is monthly in most cases. Most dividend stocks pay quarterly and most bonds pay every six months, so they cannot be aligned to meet regular expenses.

Of course, we know that monthly dividend payers tend to be mostly real estate investment trusts (REITs), business development companies (BDCs), and closed-end funds (CEFs). Hence, monthly dividend income stocks are a good way to balance your portfolio, but overloading is not recommended as it would mean you have become overloaded on these three types of companies in your portfolio.

Investors should be very cautious about REITs right now because of coronavirus and both people and businesses not paying rents or mortgages.  Just yesterday it was reported that NYC’s famous Fifth Avenue landlords were behind over $200 million in rent.  We may not fully know how hard REITs and BDCs will be hit until January 2022.

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We must also not forget that this is an investment we are talking about. Hence, we must not lose sight of the yield generated by the investment, not merely the dividend payout. Chasing high yields can end in disaster.

Enough said, here we go…

Tortoise Essential Asset Income Term Fund (TEAF)

TickerCompanySectorPriceEx-Dividend DateDividend YieldBeta 3-YearConsecutive Div. Growth YearsYTD Return3-Year Return
TEAFTortoise Essential Assets Income Term FundFinancial Services$14.614/22/20216.20%0.77– 13.70%– 

With investments intangible, long-lived assets it deems to be “essential,” or indispensable to the modern economy as its theme, the Tortoise Essential Asset Income Term Fund (TEAF) is a close-ended fund (CEF) that finds itself to be in a position to benefit from expected developments in 2021. It makes for a motley collection of assets brought together by its unique theme, which is further divided into three categories: social, sustainable, and energy infrastructure.

Social infrastructure – Includes facilities for senior living, housing and education.

Sustainable infrastructure – While investments cover the standard profile of assets in solar, wind and other renewables, this segment becomes an inviting component of the mix, with a green mandate being the call of the Biden administration. 

ABS REPORT

Energy infrastructure – Main focus is midstream pipelines, but also has exposure to companies in production and exploration.

Government spending on infrastructure, especially green infrastructure, can be expected to rise.

As is perhaps well known, close-ended funds trade at discounts to their net asset value (NAV). The redemption of the fund is typically more beneficial for an investor than a sale on an exchange which delivers only a discounted value. A value investor hoping to benefit from the discount could be disappointed as his sale will also be at a discounted unless there is an event that bridges the gap between NAV and price. Else, the gap might remain forever. TEAF being a term fund and not a classic CEF, will liquidate in about ten years from now at which point the NAV will be paid out.

What does this mean to an investor?

If you buy today, you will get it at a discount to the NAV. Not only will you get the attractive 6.7% yield, paid monthly, you can also expect a reasonable capital gain at the time of redemption. At year-end prices, TEAF trades at a 17% discount to NAV.

Stag Industrial (STAG)

TickerCompanySectorPriceEx-Dividend DateDividend YieldBeta 3-YearConsecutive Div. Growth YearsYTD Return3-Year Return
STAGStag IndustrialReal Estate$34.793/30/20214.20%1.06912.40%70.90%

We have seen the stock of Amazon rising over the last two decades. If you are a landlord of Amazon, you are likely to get some rub-off benefit.

As a new-age landlord with properties classified as light industrial and logistical, such as distribution centers in its portfolio, Stag’s biggest client is Amazon.com and 40% of its portfolio is E-commerce. The pandemic has given a fillip to the e-commerce industry which has anyway been growing rapidly over many years. Despite that, e-commerce contributes only 16% of retail sales. Hence, we can expect a long runway of growth, especially since Stag’s share of a fragmented logistical property market, estimated at $1 trillion, is only 0.5%.

As a small, conservative business in a large, growing market, STAG looks like a good bet for the next decade at least.

Main Street Capital (MAIN)

TickerCompanySectorPriceEx-Dividend DateDividend YieldBeta 3-YearConsecutive Div. Growth YearsYTD Return3-Year Return
MAINMain Street CapitalFinancial Services$41.324/28/20216.00%1.09031.10%39.00%

Update 4/15/2021: We really like MAIN, but it is trading very high and it isn’t worth the risk for us at this time. However, earnings will come soon and it definitely a good one to watch. (See our recent article)

Occupying an important space between the local bank and Small Business Administration (SBA) and Wall Street, Houston, Texas-based Main Street Capital is a business development company (BDC) that provides small and medium-sized businesses (SMEs) with much-needed growth capital in the form of debt and equity capital, with $13 million being their average portfolio investment.

It sounds counter-intuitive to be recommending Main Street at a time when small businesses, especially ones providing services, have just been through a pandemic and lockdown-induced bloodbath. However, this is a recommendation for the future, where a return to ‘normalcy’ is widely expected, when their business model, Main Street can only look up, especially since they have done a great job of navigating troubled waters in this period.

Horizon Technology Finance Corp. (HRZN)

TickerCompanySectorPriceEx-Dividend DateDividend YieldBeta 3-YearConsecutive Div. Growth YearsYTD Return3-Year Return
HRZNHorizon Technology Finance CorporationFinancial Services$15.854/19/20217.60%1.06– 22.30%105.80%

If you like the technology sector and looking for income, then Horizon Technology Finance Corp. may be a good pick for you. As the name implies, it is a tech finance business development company that specializes in both lending and investing in technology. The primary focus is making secured debt lending to venture capital companies.

The current dividend is 7.65%. The stock does have more volatility than what we prefer, but it did hold up in 2020 and paid the monthly dividend with disruption. On the downside, HRZN is currently trading very high.

Cohen & Steers Closed-End Opportunity Fund (FOF)

TickerCompanySectorPriceEx-Dividend DateDividend YieldBeta 3-YearConsecutive Div. Growth YearsYTD Return3-Year Return
FOFCohen & Steers Closed-End Opportunity Fund IncFinancial Services$13.704/13/20217.60%0.81– 12.50%43.50%

As a fund of funds, the Cohen & Steers Closed-End Opportunity Fund (FOF) invests in other close-ended funds (CEFs). ‘FOF,’ its ticker symbol, stands for ‘fund of funds.’

While the above is mostly accurate, FOF also invests in exchange-traded funds (ETFGs), with about 3% of its portfolio invested in SPDR Gold Trust ETF and another 6% in S&P 500 index ETFs.

FOF seeks to deliver high total returns that comprise income, as well as capital gains. It has a broad mandate. It appears to favor stock-based investments over others with 60% of its allocation being to equity funds, 21% to taxable fixed income funds, 11% in municipal bind funds, with 7% going to commodity funds, that includes gold.

As a close-ended fund, it was available at a 5% discount to its NAV at the year-end. If one takes into account whose portfolio includes other close-ended funds which are also typically trade at discounts to their NAVs, it can create a juicy opportunity for a value investor.

It delivers a yield of 7.6%, paid monthly.

Gladstone Capital Corporation (GLAD)

TickerCompanySectorPriceEx-Dividend DateDividend YieldBeta 3-YearConsecutive Div. Growth YearsYTD Return3-Year Return
GLADGladstone CapitalFinancial Services$10.583/17/20217.40%1.03021.80%62.50%

Much smaller than competitors Main Street and Prospect, Gladstone Capital Corporation falls back on the Gladstone Companies family, which includes Gladstone Investment and Gladstone Land, for heft, which manages about $3 billion in assets.

With a portfolio of 48 companies in 18 industries, in 2001 one of the first BDCs created for the business of funding smaller middle-market businesses, Gladstone can boast of a diversified portfolio. Perhaps even more importantly, its exposure to struggling sectors of the economy, such as energy, at 5.8%, is minimal, making it a wholesome, attractive portfolio.

With a 9.0% yield at current prices, it is one of the highest monthly dividend-paying stocks at least on this list.

Realty Income (O)

TickerCompanySectorPriceEx-Dividend DateDividend YieldBeta 3-YearConsecutive Div. Growth YearsYTD Return3-Year Return
ORealty IncomeReal Estate$65.523/31/20214.30%0.9810+6.60%43.20%

So closely is Realty Income tied to the identity of being a monthly dividend-paying investment, it has even trademarked ‘The Monthly Dividend Company’ as its nickname.

With 604 continuous monthly dividend payout and dividend being raised in 92 consecutive quarters, till December 2020, it is the consistency with which Realty has been paying dividends that makes it a top pick in this segment. Its compounded dividend growth has been 4.5% annually since its IPO in 1994.

2020 has been a struggle for Realty, as it has been for others in the segment, of retail landlordship. With tenants like LA Fitness, AMC Entertainment, Regal Cinemas and Lifestyle Fitness whose businesses have taken a hit because of the pandemic, it follows that there has been a resultant impact on Realty too.

With vaccine solutions on the horizon, Realty Income becomes an interesting pick once again with the expectation that as the vaccine coverage increases, normalcy will be restored, as will the business model of retail landlordship. With an improvement in the fortunes of its renting clients, Realty can hope for an improvement in its fortunes as well.

Dynex Capital (DX)

TickerCompanySectorPriceEx-Dividend DateDividend YieldBeta 3-YearConsecutive Div. Growth YearsYTD Return3-Year Return
DXDynex CapReal Estate$19.373/19/20218.10%0.72011.40%39.90%

After an existentialist threat that stared Mortgage REITs square in the eyes in March, with credit markets and bond liquidity freezing up, forcing many to part with good quality assets at throwaway prices to meet margin calls, valuations have recovered substantially.

Dynex Capital was not spared by the volatility the markets had been engulfed in. But it has been quick to recover, ending on even par for the year after having lost two-thirds of its value in March. With the recovery under way, driven by prospects of a return to normalcy with vaccination coverage expanding, Dynex can be expected to keep pace with the recovery. Agency mortgage securities, favored by the Federal Reserve, constitutes 95% of its portfolio.

Usually a not-too-active part of the market, mortgage REITs are expected to gain traction with the return of investors in a low interest-rate regime. At 8.7%, with one of the highest dividend payouts, Dynex looks particularly attractive. Analysts predict a possible range of returns for Dynex at between 9 and 11%, with leverage at extant levels.

LTC Properties (LTC)

TickerCompanySectorPriceEx-Dividend DateDividend YieldBeta 3-YearConsecutive Div. Growth YearsYTD Return3-Year Return
LTCLTC PropertiesReal Estate$43.524/21/20215.20%1.09013.40%36.90%

2020 has not been an easy year for LTC Properties, a landlord with approximately an equal division of its portfolio between senior living facilities as well as skilled nursing facilities.

While it is difficult to estimate numbers, it is believed that many seniors have postponed their moves into senior living facilities on account of the pandemic and the fear of catching the virus from or communicating it to other seniors in the facility, since seniors are believed to be particularly susceptible.

With vaccines on the horizon and coverage gradually increasing, it is to be expected that seniors’ move to senior living homes will pick up pace as should interest in the stock. On a slightly longer horizon, with the aging baby boomer population expected to create unprecedented demand on seniors housing, it can only look up for LTC Properties from here.

Prospect Capital (PSEC)

TickerCompanySectorPriceEx-Dividend DateDividend YieldBeta 3-YearConsecutive Div. Growth YearsYTD Return3-Year Return
PSECProspect CapitalFinancial Services$8.004/29/20219.00%0.69051.60%70.70%

Another BDC that finances the middle market is Prospect Capital. With a portfolio of 120 companies across 39 industries, Prospect can be considered to be well diversified with a focus on debt, with first-lien loans and other senior secured debt constituting 80%.

It has chosen to pay monthly dividends without any periodic topping up like Main Street Capital. Having committed to consistent monthly dividend payouts, on occasions it has cut into the bone leading to the payout being pared back; twice in the last decade, to be more specific.

At year-end prices were still 16% off. At these prices, the yield works out to a substantial 13%.

If a ‘skin in the game’ of the managing team was to be a criteria in stock selection, Prospect would stand head and shoulders over most others. In 2020 alone, CEO John Barry has added 31 million shares of Prospect at a cost of $144 million.

How is that for confidence in the company’s future performance?

DoubleLine Income Solutions Fund (DSL)

TickerCompanySectorPriceEx-Dividend DateDividend YieldBeta 3-YearConsecutive Div. Growth YearsYTD Return3-Year Return
DSLDoubleLine Income Solutions FundFinancial Services$18.204/14/20217.30%0.72– 12.10%19.60%

Going beyond stocks that pay out monthly dividends, several funds also fit the bill. This will have the added benefit of a further diversification of your portfolio.

A close-ended fund run by bond guru Jeffry Gundlach, The DoubleLine Income Solutions Fund is a fairly non-restrictive fund that has a broad mandate. Essentially, it gives you an opening into the Gundlach world, if you have a yen for his work and research.

Even by Gundlach standards, launching DoubleLine Capital, that manages more than $140 billion, has been a major achievement, other than the correct call on the 2007 housing market collapse.

Though DoubleLine’s portfolio has major investment in corporate debt, it has exposure to asset-backed and securitized mortgage securities, bonds and bank loans. Besides, its exposure is global, with only 40% being on the United States, while 17% exposure is to the developed world other than the US.

It is the 43% exposure to emerging markets like Mexico and Argentina that appears to be the most interesting element in its composition. If expectations of a return to normalcy play out on the lines expected, emerging market securities are expected to benefit. Double Line provides us with just the vehicle to access the growth in emerging markets.

Why would you not want access to these markets, while getting an 11% monthly dividend payout?

Vanguard Short-Term Corporate Bond ETF (VCSH)

TickerCompanySectorPriceEx-Dividend DateDividend YieldBeta 3-YearConsecutive Div. Growth YearsYTD Return3-Year Return
VCSHVanguard Short-Term Corporate Bond Index Fund ETF Shares$82.504/1/20211.70%0.05– -0.50%13.70%

Vanguard Short-Term Corporate Bond ETF (VCSH) is the owner of short-duration corporate bonds with maturities between one and five years, with an average maturity of 3.1 year at the time of going to press. 45.5% of VCSH’s portfolio in A-rated bonds and 45.6% in BBB. AA-rated bonds account for most of the remainder.

Since future trends of a market can be predicted only with caveats, investors have many strategies to choose from, one being ‘go to cash (or cash equivalent).’ It can help you ride out a volatile period and give you the flexibility to buy on dips.

VCSH is a good ‘cash equivalent’ for that part of your portfolio earmarked for cash or short-term bonds. It may not be as safe as Treasury Bonds, but is a bond portfolio of high quality unlikely to be subject to losses in a bear market.

Using the most recent dividend payout as the benchmark, VCSH gives you a yield of just under 2%. Not a big number by any calculation, but, in the current interest-rate environment, quite a gain over cash.

12 Monthly Dividend Stocks Compared

TickerCompanySectorPriceEx-Dividend DateDividend YieldBeta 3-YearConsecutive Div. Growth YearsYTD Return3-Year Return
DSLDoubleLine Income Solutions FundFinancial Services$18.204/14/20217.30%0.72– 12.10%19.60%
DXDynex CapReal Estate$19.373/19/20218.10%0.72011.40%39.90%
FOFCohen & Steers Closed-End Opportunity Fund IncFinancial Services$13.704/13/20217.60%0.81– 12.50%43.50%
GLADGladstone CapitalFinancial Services$10.583/17/20217.40%1.03021.80%62.50%
HRZNHorizon Technology Finance CorporationFinancial Services$15.854/19/20217.60%1.06– 22.30%105.80%
LTCLTC PropertiesReal Estate$43.524/21/20215.20%1.09013.40%36.90%
MAINMain Street CapitalFinancial Services$41.324/28/20216.00%1.09031.10%39.00%
ORealty IncomeReal Estate$65.523/31/20214.30%0.9810+6.60%43.20%
PSECProspect CapitalFinancial Services$8.004/29/20219.00%0.69051.60%70.70%
STAGStag IndustrialReal Estate$34.793/30/20214.20%1.06912.40%70.90%
TEAFTortoise Essential Assets Income Term FundFinancial Services$14.614/22/20216.20%0.77– 13.70%– 
VCSHVanguard Short-Term Corporate Bond Index Fund ETF Shares$82.504/1/20211.70%0.05– -0.50%13.70%
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