Many investors, including myself, love monthly dividend stocks. The main reason is that it creates a regular monthly income stream that is aligned to the frequency at which expenses generally occur, like payment of bills, which is monthly in most cases.
Due to market conditions, finding the best monthly dividend stocks is very challenging. However, the biggest obstacle is the fact that most stocks pay quarterly, and most bonds pay every six months, so they cannot be aligned to meet regular expenses.
Dividend investing is something I have really learned to love because of the lure of passive income. When I was a financial advisor, I would design portfolios for clients so that they could have income coming in every month.
The reality is taking a lot of money to fully fund a portfolio. Many try to make up for the gap needed by finding high-yield monthly dividend stocks, which can lead to big losses.
The secret to finding the best monthly dividend stock investing is finding high-quality stocks that will last. Personally, I am always looking at low Beta and a slightly bullish trend.
Of course, we know that monthly dividend stocks tend to be mostly real estate investment trusts (REITs), business development companies (BDCs), and closed-end funds (CEFs).
Hence, monthly dividend stocks are a good way to balance your portfolio. Still, overloading is not recommended as it would mean you have become overloaded on these three types of companies in your portfolio.
What are some of the dangers of investing in a monthly dividend company?
Investing in this type of investment can be a disadvantage because you don’t have control over the company’s overall value. Investing in companies that give out monthly dividends will eventually need to depend on that company’s leaders to make the right decisions for your investments.
You’ll need to look at their decisions objectively and see if they’re making the right choices for your investments. Sometimes, these companies are not always reliable because they depend on others who make decisions that are not always best for those who invested in them – like those who buy these shares.
If you’re looking to generate income from dividends, there are a lot of great monthly dividend stocks to choose from. But before you invest in one, it’s critical that you understand the dangers associated with this type of investment.
- You invest more money than necessary to purchase the stock or ETFs that give out monthly dividends to get rich quickly. Investing is not a fast process or easy.
- You think this type of investment doesn’t require much attention when it does – attention will be required monthly and potential trades or reinvestments into newer companies/ETFs.
- The company has financial problems at some point, meaning your dividends will stop coming in and “you’ve been scammed.” This is very common with non-traded REITs.
- You chase high-paying dividends, and the company goes bankrupt, and you lose your investment. Your money is gone.
- You have to sell your investment after a while and find yourself in a vulnerable position.
- You mistakenly buy individual stocks that will never give you the return you expect.
- Sometimes, investments in monthly dividend stocks do meet your financial objective, meaning it’s better to invest your money into regular investments or index funds because your true financial goals are growth.
Monthly Dividend Stocks Final thoughts
Investors should be very cautious about REITs because of the recession, people, and businesses not paying rent or mortgages.
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.
If you’re looking to generate income from dividends, there are a lot of great monthly dividend stocks to choose from. But before you invest in one, it’s critical that you understand the dangers associated with this type of investment.
13 Monthly Dividend Paying Stocks 2021
Monthly dividend stocks have instant appeal. With monthly dividends, investors can see their payout deposited in their brokerage account without any additional work on their behalf, helping boost their confidence in dividend stocks.
Many investors like companies because they offer frequent payouts that better match their inflows than traditional quarterly or semi-annual dividend payers.
This gives an investor the confidence that their payout will be there when they need it, instead of waiting for a lumpier regular dividend payer to post their paycheque.
Monthly dividend companies also allow an investor to experience the pleasure of re-investing their dividend payment without having to lift their foot off the accelerator in their brokerage account.
Tortoise Essential Asset Income Term Fund (TEAF)
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.
We include it in the list of monthly dividend stocks, even though it is not technically a stock. 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.
Energy infrastructure – Main focus is midstream pipelines, but it 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 that 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 discount unless an event 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 about ten years from now, at which point the NAV will be paid out.
What does this mean to an investor?
If you buy it 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)
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. This is why STAG is a top monthly dividend stock pick.
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 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)
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. Rising inflation and interest rates could also hurt the company. We are leaving it on our list of monthly dividend stocks and will let you decide whether to invest.
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 recommend Main Street when small businesses, especially those 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)
If you like the technology sector and are looking for a dividend stock, then Horizon Technology Finance Corp. may be a good pick. 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 has more volatility than we prefer, but it did hold up in 2020 and paid the dividend with disruption. On the downside, HRZN is currently trading very high.
Cohen & Steers Closed-End Opportunity Fund (FOF)
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.’ It is a favorite among stock investors.
While the above is mostly accurate, FOF also invests in exchange-traded funds (ETFs), 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 comprising income and 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% to municipal bond funds, with 7% going to commodity funds, which include 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 traded 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)
Much smaller than Main Street and Prospect competitors, 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. We have the same concerns about GLAD.
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)
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. O is often among the top picks for monthly dividend stock investors.
With 604 continuous monthly dividend payouts and dividends being raised in 92 consecutive quarters till December 2020, the consistency with which Realty has been paying dividends 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 landlords. 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 landlords. With an improvement in the fortunes of its renting clients, Realty can also hope for an improvement in its fortunes.
Dynex Capital (DX)
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. We are hesitant to recommend a REIT.
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 underway, 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, constitute 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)
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. Although we are worried about real estate because of covid, we think LTC is a great pick as a monthly dividend stock.
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 the pace, as should interest in the stock. On a slightly longer horizon, with the aging baby boomer population expected to create unprecedented demand for seniors housing, it can only look up for LTC Properties from here.
Prospect Capital (PSEC)
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%. We have similar issues with MAIN that Prospect Capital debt could be a serious problem due to inflation and rising interest rates. However, we include it as a monthly dividend stock pick.
It has chosen to pay monthly dividends like Main Street Capital without periodic topping up. 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 were to be a criterion in stock selection, Prospect would stand head and shoulders over most others. In 2020 alone, CEO John Barry added 31 million shares of Prospect at the cost of $144 million.
How is that for confidence in the company’s future performance?
AGNC Investment Corp
AGNC Investment Corp. is a Maryland corporation formed in July 2006 and headquartered in Chevy Chase, Maryland. The company became publicly traded on November 14, 2008.
AGNC Investment Corp. operates as a real estate investment trust (REIT) in the United States. The company invests in residential mortgage pass-through securities and collateralized mortgage obligations for which the principal and interest payments are guaranteed by the United States government-sponsored enterprise or by the United States government agency.
It funds its investments primarily through collateralized borrowings structured as repurchase agreements. The company has elected to be taxed as a REIT under the Internal Revenue Code of 1986. It is not subject to corporate-level federal income taxes but passes income, net of expenses, and other deductions to its shareholders.
DoubleLine Income Solutions Fund (DSL)
Several funds also fit the bill beyond stocks that payout monthly dividends. This will have the added benefit of 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, which 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.
The 43% exposure to emerging markets like Mexico and Argentina 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 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)
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 years at the time of going to the press. 45.5% of VCSH’s portfolio is in A-rated bonds and 45.6% in BBB. AA-rated bonds account for most of the remainder. Definitely not the sexiest, but a very stable monthly dividend stock pick.
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.
Data For Monthly Dividend Stocks
| Ticker | Company | Sector | Dividend Yield | Expected Dividend Growth Rate | YTD Return | 3-Year Return | Beta 3-Year |
|---|---|---|---|---|---|---|---|
| AGNC | AGNC Investment | Real Estate | 12.80% | 0% | -19.00% | -3.30% | 0.75 |
| DSL | DoubleLine Income Solutions Fund | Financial Services | 11.30% | -11% | -21.70% | -19.30% | 0.69 |
| DX | Dynex Cap | Real Estate | 10.50% | 0% | -5.30% | 33.40% | 0.74 |
| FOF | Cohen & Steers Closed-End Opportunity Fund Inc | Financial Services | 9.60% | 0% | -21.30% | 7.60% | 0.79 |
| GLAD | Gladstone Capital | Financial Services | 8.30% | 2% | -11.40% | 30.60% | 1.02 |
| HRZN | Horizon Technology Finance Corporation | Financial Services | 10.40% | 0% | -22.20% | 29.30% | 1.06 |
| LTC | LTC Properties | Real Estate | 5.40% | 0% | 28.60% | 0.00% | 1.01 |
| MAIN | Main Street Capital | Financial Services | 6.70% | 3% | -6.90% | 11.10% | 1.09 |
| O | Realty Income | Real Estate | 4.70% | 1% | -8.10% | -0.10% | 0.97 |
| PSEC | Prospect Capital | Financial Services | 9.80% | 0% | -6.80% | 54.60% | 0.73 |
| STAG | Stag Industrial | Real Estate | 4.70% | 0% | -33.50% | 18.80% | 1.07 |
| TEAF | Tortoise Essential Assets Income Term Fund | Financial Services | 7.50% | 28% | 2.80% | 11.30% | 0.71 |
| VCSH | Vanguard Short-Term Corporate Bond Index Fund ETF Shares | 2.20% | - | -6.10% | -0.60% | 0.07 |
Why do Companies Pay Dividends?
Many factors go into why companies issue dividends. However, one of the most popular is that a company can generate steady cash flow that can then be deployed to acquire additional shares, equipment, facilities, or intellectual property. This keeps the company competitive.
What Are the Risks of Choosing Monthly Dividend Stocks?
Below you will find an infographic of the risks of dividend stocks. While many dividend stocks pay monthly dividends, which can help mitigate risk factors, investing in individual stocks that pay monthly dividends may pose risks.
For instance, investing in individual stocks that only pay regular monthly dividends may mean that investors can generate very stable passive income. Still, it doesn’t mean that investing in individual stocks will be risk-free. Many individual dividend investors may have to take on significant debt or put their retirement at serious risk by engaging in investment activity.
Moreover, individual investments that generate passive income may also generate recurring expenses, which can lead investors to dip into their investments at a time they don’t need it, or may cause the investors to take on debt or take on unsustainable investment expenses such as mortgage and utility payments.
Why Dividend Yield is Not the Best Measure of a Dividend Stock
One could make the argument that the measure that matters is not the share price but the dividend yield. But dividend yield is somewhat subjective and depends on several other factors.
How Can Fund Investors Access Monthly Dividend Stocks
Many companies issue monthly dividends as a way to boost shareholder value, especially for retired investors who need reliable cash flow from their investments. However, investing in monthly dividend stocks is a challenge for many income-oriented investors because most dividend-paying companies pay them at the end of the month.
Furthermore, monthly dividend payments may result in fewer payouts than traditional quarterly dividends. Finally, investors may lack access to information that could help them properly structure their monthly dividend investments to generate predictable passive income.
To generate passive income from dividend-paying companies such as Realty Income Properties Inc. (O) (O, $11.67) O, Inc. (O) is a REIT, otherwise known as a real estate investment trust. It produces passive income by reinvesting the principal payments into more properties.
Check out closed-end funds for monthly dividends
Closed-end funds (CEFs) are collections of stocks or funds and bonds, typically traded by institutional investors for their investments’ returns without involvement from the buyers of those funds.
CEFs can generate very high returns, but they come with risks. Because of the investments they contain and the investments of investors they buy, it can sometimes be difficult for CEFs to pay out monthly dividends consistently to investors.
That makes CEFs ideal for retirement investments where the investors need reliable cash flows from the fund’s investments. But savvy investors can use CEFs as investment vehicles to generate much more frequent cash flows than traditional brokerage accounts, enabling them to generate their own investment income.
What dividend investors should watch out for
Monthly dividends can be attractive, but remember that the underlying company still must thrive and may ultimately liquidate its remaining shares if sales and profitability don’t improve substantially.
Furthermore, monthly dividends can be attractive only if the company has many other recurring cash-generating activities, such as capital expenditures or research and development.
Invest in monthly dividend stocks for recurring income
Monthly dividend stocks are better than traditional quarterly dividend stocks when it comes to recurring rental revenue (CRT), such as movie tickets, car insurance, gym membership, etc. These stocks generally pay quarterly, with the best performing monthly dividend stocks being: Realty Income Corp. (NYSE:O, $15.66); PermRock (PVLK, $13.66). This frequency better aligns with how many times a typical customer would need to pay rent on a vehicle.
