Monthly dividend stocks appeal to income investors for several reasons. Stocks that pay dividends monthly provide more predictable income and make it easier to budget, especially for those living off dividends in retirement.
Most companies pay dividends on a quarterly schedule, which can result in a lumpier income stream. Monthly dividend stocks better match income with monthly expenses such as mortgage and utility payments to make budgeting easier.
Monthly dividend-paying stocks come with another potential benefit as well – faster compounding. Simply put, the more often we receive dividends, the faster we can reinvest to buy more shares and generate even more dividend income.
Stocks that pay monthly dividends allow us to potentially increase the number of shares we own at a faster pace than a company paying quarterly dividends, helping dividend income compound at a faster rate.
However, remaining focused on owning blue chip dividend stocks with safe, growing dividends and reasonable valuations is most important, regardless of a company’s payout schedule.
Different Types of Monthly Dividend Stocks
Over 400 companies and funds in our database pay dividends monthly. Despite the large number of monthly dividend stocks, most of these companies fall into just a handful of industries.
Many of the businesses that pay monthly dividends are closed-end funds. A closed-end fund is a type of mutual fund whose shares are traded on a stock exchange. Its assets are actively managed by the fund’s portfolio managers, and these funds can be invested in stocks, bonds, and other securities.
We are personally uncomfortable investing in most closed-end funds due to several of the unique risks they possess (e.g. financial leverage). For those that are interested in learning more about closed-end funds, please see our Guide to Investing in Closed-End Funds.
As individual dividend investors, we are more interested in hand-picking high quality dividend stocks that meet our investing objectives while also avoiding the hefty management fees charged by mutual fund companies.
Outside of closed-end funds, a common type of stock paying monthly dividends is a real estate investment trust (REIT). REITs are popular monthly dividend payers because they typically collect rent payments from their tenants on a monthly basis and are required to pay out at least 90% of their taxable income as dividends.
By distributing their income monthly, REITs can more easily manage the tax complexities of their businesses. However, it’s very important to note a major distinction between the two primary types of monthly dividend-paying REITs – equity REITs and mortgage REITs.
Equity REITs own properties such as malls, apartments, and office buildings that are leased out to tenants who pay them rent. There are many types of equity REITs, and we own a couple of them in our Conservative Retirees dividend portfolio.
On the other hand, mortgage REITs deal with property mortgages and do not own any physical properties. They loan money for mortgages to the owners of real estate properties and can also purchase existing mortgages.
Mortgage REITs make money by earning interest on the residential and commercial mortgage loans they make. The mortgages they issue or purchase pay them a higher interest rate than what they pay to borrow money at short-term interest rates.
For this reason, mortgage REITs are especially sensitive to interest rates, which impact their net interest margin. When interest rates rose in 2013, many mortgage REITs had to cut their monthly dividends.
Mortgage REITs typically use significant financial leverage to magnify their returns and often have very high dividend yields.
A third group of monthly dividend stocks to be aware of is business development companies (BDCs). BDCs are investment companies that primarily invest in small and medium-sized businesses. In many ways, they are similar to venture capital or private equity funds.
BDCs typically maintain a pass-through tax structure like REITs and must distribute at least 90% of their taxable income in the form of dividends.
Despite their typical investment diversification across many different companies, we consider BDCs to have above-average risk characteristics, even for monthly dividend stocks. It’s hard to get comfortable with their high payout ratios, financial leverage, murky underlying investments, and challenging accounting.
Monthly Dividend Stocks: Dividend Risks
Investors should never buy a dividend stock based solely on its payment schedule, and most monthly dividend stocks have below-average Dividend Safety & Growth Scores.
The main benefits of more predictable income and faster compounding can certainly prove to be an illusion if investors are not careful when selecting their monthly dividend stocks.
Interestingly enough, less than 10 of the 400+ monthly dividend stocks in our database have increased their dividend for at least five consecutive years, and only one has paid higher dividends for at least 10 straight years.
Companies typically have short dividend growth streaks for one of two reasons.
In some cases, businesses pay a small dividend and keep it steady because of the plentiful opportunities they have for reinvestment and growth. As long as the growth projects available to the company earn higher returns than we could by receiving the dividend and reinvesting it elsewhere, this capital allocation decision seems logical.
The other driver behind negligible dividend growth streaks is of greater concern. Some companies operate in markets that make sustainable profit growth much more difficult.
For example, there was little that a leveraged home builder could do to grow its dividend when the subprime housing crisis struck in 2008.
Other companies, such as REITs, maintain much higher payout ratios and/or financial leverage, leaving them with a smaller margin for error than other businesses.
For these reasons, income investors considering purchasing monthly dividend stocks should remain aware that their Dividend Safety & Growth prospects are collectively lower on average.
While many monthly dividend stocks possess high-yield dividends, please proceed with caution. If a stock looks too good to be true, it usually is!
The Best Monthly Dividend Stocks
As we look across the monthly dividend stocks in our database, we see a lot of stocks we will never invest in due to their low dividend safety and high price volatility.
That’s not to say that investors won’t experience success with some of these high-yield monthly dividend payers, but we just can’t get comfortable with their risk profiles.
With that said, there is a small group of monthly dividend stocks that could provide a decent starting point for investors. A full table of monthly dividends tocks can be seen below with three of the more interesting ones analyzed below.
Monthly Dividend Stocks
|Ticker||Company Name||Sector||Industry||Category||Market Cap ($M)||Market Cap||Safety Score||Growth Score||Yield Score||Div Yield||Dividend Growth Streak||EPS Payout Ratio||5yr Median EPS Payout||FCF Payout Ratio||5yr Median FCF Payout||Ex-Dividend Date||Pay Date||1yr Dividend Growth||3yr Dividend Growth||5yr Dividend Growth||10yr Dividend Growth||Annual Dividend ($)||Dividend Payment ($)||Payment Frequency||P/E Ratio||Free Cash Flow Yield||Enterprise Value / Sales||Enterprise Value / EBIT||Price-to-Book Ratio||Gross Margin||Operating Margin||Profit Margin||FCF Margin||Return on Equity||5yr Median ROE||ROIC||5yr Median ROIC||1yr Sales Growth||5yr Sales CAGR||1yr EPS Growth||5yr EPS CAGR||Current Ratio||Debt to Capital||Debt to Capital||Debt to Equity||Debt to Equity||Net Debt to EBIT||Net Debt to EBIT||EBIT / Interest||EBIT / Interest||1yr Total Return||5yr Total Return CAGR|
|IBMJ||iShares iBonds Dec 2021 Term Muni Bond ETF||ETFs, Funds, Trusts||-0.00||Unknown||50||50||12||0.9||11/01/2021||2021-11-05||-51||-20||-11||0.2||0.0||Monthly||0||1|
|CLYH||iShares Interest Rate Hedged Long-Term Corporate Bond ETF||ETFs, Funds, Trusts||0.22||474||Small: $400M to $2B||50||50||54||3.1||08/02/2022||2022-08-08||12||-11||1||0.7||0.1||Monthly||-5||1|
|THW||Tekla World Healthcare Fund||ETFs, Funds, Trusts||0.68||565||Small: $400M to $2B||30||50||91||9.2||07/20/2022||2022-07-29||0||0||0||1.4||0.1||Monthly||-1||9|
|XSHD||Invesco S&P SmallCap High Dividend Low Volatility ETF||ETFs, Funds, Trusts||0.74||17||Micro: < $400M||50||50||74||5.1||06/21/2022||2022-06-30||-21||-10||53||1.0||0.1||Monthly||-8||1|
|EMBH||iShares Interest Rate Hedged Emerging Markets Bond ETF||ETFs, Funds, Trusts||0.30||5||Micro: < $400M||50||50||57||3.4||08/02/2022||2022-08-08||-13||-17||-9||0.7||0.1||Monthly||-8||0|
|PFFA||Virtus InfraCap U.S. Preferred Stock ETF||ETFs, Funds, Trusts||0.36||514||Small: $400M to $2B||50||50||89||8.6||07/20/2022||2022-07-28||2||19||2.0||0.2||Monthly||-3|
|BSCP||Invesco BulletShares 2025 Corporate Bond ETF||ETFs, Funds, Trusts||0.04||1,166||Small: $400M to $2B||50||50||32||1.9||07/18/2022||2022-07-22||-31||-18||-8||0.4||0.0||Monthly||-6||2|
|AGGY||WisdomTree Yield Enhanced U.S. Aggregate Bond Fund||ETFs, Funds, Trusts||0.03||965||Small: $400M to $2B||50||50||36||2.1||07/25/2022||2022-07-28||-18||-13||-4||1.0||0.1||Monthly||-11||1|
|OEUR||ALPS | O'Shares Europe Quality Dividend ETF||ETFs, Funds, Trusts||0.79||33||Micro: < $400M||50||50||48||2.7||07/28/2022||2022-08-02||66||10||9||0.7||0.0||Monthly||-18||2|
|CDL||VictoryShares US Large Cap High Div Volatility Wtd ETF||ETFs, Funds, Trusts||0.56||465||Small: $400M to $2B||50||50||52||3.0||07/11/2022||2022-07-13||2||5||6||1.8||0.2||Monthly||6||10|
Best Monthly Dividend Stocks: Realty Income (O)
Realty Income is the most renowned monthly dividend payer. The company is an equity REIT focused on retail properties, which account for close to 80% of its rent.
The business is well-diversified across more than 45 industries and boasts a lineup of 240 commercial tenants, with the largest account for a reasonable 6.9% of rent.
Realty Income’s conservatism has enabled it to pay monthly dividends for over 540 consecutive months (over 45 years) while rewarding shareholders with 5% annualized dividend growth since 1994.
Not surprisingly, Realty Income received the highest Dividend Safety Score out of all the monthly dividend stocks in our database.
Best Monthly Dividend Stocks: LTC Properties (LTC)
LTC Properties has been in business since the early 1990s and has built up a portfolio of approximately 200 properties focused on seniors housing and health care. LTC either owns or holds mortgages on these properties.
The company is more concentrated than Realty Income with its top three operators (Prestige Healthcare, Senior Lifestyle Corporation, Brookdale Senior Living) accounting for about 35% of total annual income. Medicare and Medicaid payments also drive nearly half of its portfolio’s payments.
As we noted in our analysis of healthcare REIT HCP, the healthcare sector carries a number of risks that investors need to be aware of, but LTC has at least historically been a reliable dividend payer.
LTC has paid uninterrupted dividends since 2002 and most recently had a funds available for distribution (FAD) payout ratio of 79% in the fourth quarter of 2015.
Best Monthly Dividend Stocks: Shaw Communications (SJR)
Shaw Communications is a telecommunications firm serving more than 3 million customers with its broadband internet, WiFi, digital phone, and video products and services.
The company primarily operates across Canada and has 1.9 million TV subscribers, 1.9 million internet customers, and 1.4 million phone subscribers in the region.
Shaw is a capital-intensive business with assets that are difficult to replicate (e.g. a fiber network). Customers typically have few alternative suppliers to choose from, which results in a steady base of recurring revenue for Shaw.
It’s also worth mentioning that Shaw has a dividend reinvestment plan for shareholders, offering participants who are residents of Canada the opportunity to acquire shares at a 2% discount to market.
Building a Monthly Dividend Income Stream the Hard Way
By now, it’s probably obvious that our risk aversion makes us uncomfortable investing in most of the monthly dividend stocks available.
What can we do if we still want the predictability of a monthly income stream from dividend stocks?
We can still create a portfolio that delivers reasonably consistent monthly income by owning high quality dividend stocks with quarterly payment schedules.
The way we can do this is by owning companies with complementary payout schedules and similar dividend yields.
For example, we could find three quarterly dividend stocks yielding about 3% that made dividend payments in separate months (i.e. one company pays in January, another pays in February, and the third pays in March).
Purchasing an equal amount of each business would give us income every month of the year.
Unfortunately, it’s a pain to look up when each company pays a dividend. We selected close to 100 quality dividend stocks below that pay dividends on a quarterly schedule.
We listed the months they make their dividend payments (e.g. Jan / Apr / Jul / Oct) so it’s easy to pick a basket of stocks that will pay you dividends each month.
For example, suppose you wanted to hold 30 stocks in your portfolio and receive more consistent dividend income each month.
You would need to find 10 companies in each of the three possible quarterly payment groups below:
- January / April / July / October
- February / May / August / November
- March / June / September / December
While the monthly income generated will still have some lumps due to the different dividend yields and dividend growth rates of these companies, it should be much smoother than buying dividend stocks randomly.
The quality of the portfolio’s income and income growth should also be higher in theory given the greater ability to avoid some of the risks faced by traditional monthly dividend stocks.
Monthly Income Builder
|Ticker||Name||Sector||Industry||beta||Mkt Cap ($M)||Payment Months||safety_score||growth_score||yield_score||Div Yield||Dividend Growth Streak||EPS Payout||Five_year_EPS_payout||FCF Payout||Five_year_FCF_payout||Ex-Div Date||Pay Date||one_year_dividend_growth||three_year_dividend_growth||5yr Div CAGR||ten_year_dividend_growth||annual_dividend||dividend_amount||payment_frequency||P/E Ratio||FCF_yield||EV_Sales||EV_EBIT||PB_Ratio||Gross_Margin||Operating_Margin||Profit_Margin||FCF_Margin||ROE||Five_year_ROE||ROIC||Five_year_ROIC||1yr Sales Growth||five_year_saless_growth||1yr EPS Growth||five_year_EPS_growth||current_ratio||debt_to_capital||debt_to_capital_details||debt_to_equity||debt_to_equity_details||net_debt_to_EBIT||net_debt_to_EBIT_details||EBIT_to_interest||EBIT_to_interest_details||1yr Return||five_year_tsr|
Final Thoughts on Monthly Dividend Stocks
Monthly dividend stocks offer the temptation of high dividend yields and more frequent dividend payments. However, we urge income investors to be very cautious with their consideration of investment opportunities in this space.
In our opinion, most (but not all) monthly dividend-paying stocks possess severe risk factors that are usually dormant but always present…and could rear their ugly heads at any time.
High payout ratios, significant financial leverage, and sensitivity to interest rates combine to create a cocktail that’s powerful enough to quickly stun any investor with little forewarning.
We believe stocks should be purchased based on their business quality and valuation, not their payout schedule.
However, if we had to build a portfolio with smoother monthly income patterns, our preference is to create our own monthly dividend portfolio by buying groups of stocks with complementary payout schedules and similar enough dividend yields.
This approach certainly takes more time and thought, but it opens up investment opportunities across a much larger number of high quality dividend stocks that offer safe current income and reliable income growth.
For conservative income investors who are adamant about buying monthly dividend stocks, we believe equity REITs with relatively low financial leverage offer the best potential for stable income and long-term capital appreciation.
In our opinion, many mortgage REITs, BDCs, closed-end funds, and other monthly dividend stocks are volatile and speculative high-yield plays that should be approached with caution, if at all.
With a focus on capital preservation and total return, we deliberately choose to avoid these types of monthly dividend stocks. After all, many of them might not appear risky until it’s too late.
For those desiring to own stocks with monthly dividends, please remain aware of your risk tolerance and size your positions and mix of dividend income appropriately.