Before I dive into this article, I just want to make sure we all know what dividends actually are. Most of us know these as payments we receive from companies for holding their stocks. Dividends are a small portion of the company’s profits that are repaid to its shareholders. Dividend investing is a legitimate form of long-term investing that speeds up the effects of compounding over time. So what are monthly dividend stocks?
Table of Contents
- What Are Dividends?
- Monthly Dividend ETFs
What Are Dividends?
Companies are free to do as they wish with their profits. Some re-invest this money back into the company to continue to expand operations.
For companies that have likely reached close to maximum expansion, they often turn to reward shareholders with dividends.
When you find a company that pays a dividend chances are it is profitable and has great cash flow. These are both excellent qualities to look for when deciding on companies to invest in.
Are monthly dividend stocks different from dividend aristocrats? There are different ways to get dividends in the market.
How Frequently Are Dividends Paid?
So here’s the thing. Companies can decide how exactly they want to pay their dividends out. Sometimes it can depend on the cyclical nature of their business. Perhaps they see more cash flow during one half of the year than the other. The frequency of dividend payouts is something you should research when looking into which stocks or funds to buy.
A majority of stocks and funds pay out dividends on a quarterly basis. It makes sense for the company as they generally work from quarter to quarter.
Most financial figures are calculated at the end of each quarter, and as long as the company is pulling in a profit, this is when the dividend is paid out.
But recently, there has been an influx of mostly ETFs and REITs that pay dividends on a monthly basis. Cash flow to your account twelve times per year? Sign me up for these monthly dividend stocks!
How can these assets afford to pay out dividends every month? As you’ll see, most of the monthly dividend payers are not actual stocks of companies. There are certain financial mechanisms that allow REITs and ETFs to pay out monthly rather than quarterly.
How Do REITs Work?
REITs are an interesting asset class to dissect. They mostly operate as a company, but the actual asset is modeled after a mutual fund.
REITs provide investors with the opportunity to pool their capital into the asset, and invest in physical real estate.
In a way, it’s sort of like crowdsourcing money to buy real estate. Since rent is usually paid monthly, the REIT is able to pay out monthly dividend stocks!
Although you invest in the REIT, you don’t actually own the real estate yourself. You do, however, profit off of the value and income the real estate makes. This is where the REIT dividends come into effect.
The income you receive as dividends is actually the rent that the REIT collects from people who use the real estate. To qualify as a REIT, they must meet specific requirements.
I won’t go too much into detail, but the most important qualifier is that they pay 90% of taxable income from the real estate in the form of a shareholder dividend. What are some REITs to invest in?
Monthly Dividends: Realty Income Corporation (NYSE: O)
One of the most well-known and popular REITs is Realty Income Corporation. Why is it so popular? It pays out a monthly dividend stocks yield of 4.38% and has raised this dividend every year for more than 25 consecutive years.
That’s right, for those of you who know, Realty Income Corporation is a dividend aristocrat! This REIT focuses on investing in consumer facing real estate such as major brands like CVS and 7-Eleven.
Realty Income Corporation is known for implementing triple-net leases. This means that things like insurance and maintenance falls under the tenant’s responsibility.
Why is this good for shareholders? It frees up even more cash to be paid out as dividends which is likely a reason why it has raised its dividend so consistently!
Monthly Dividends: EPR Properties (NYSE: EPR)
Another generous monthly dividend stocks paying REIT, EPR Properties focuses on entertainment and educational properties.
Things like movie theaters, amusement parks, golf courses, and non-public schools.
It’s an interesting portfolio to invest in as most of these businesses are very profitable. While most of us think of owning residential real estate, EPR Properties is proving that owning land is just as good if not better.
EPR Properties used to be a quarterly dividend paying machine, but in 2013 it changed to a monthly dividend payer.
Monthly Dividends: Stag Industrial (NYSE: STAG)
Stag Industrial is popular amongst REIT investors as it has a solid business plan and focuses on high cash flow properties. The team at Stag focuses on buildings that are selling for a cheaper price due to being worn down.
Stag buys these properties at a low price, renovates them, and then charges higher rent. Generally Stag looks at industrial properties like warehouses and distribution centers. Stag pays a monthly dividend yield of 3.67% and has been paying frequent dividends since its inception back in 2010. Don’t sleep on these monthly dividend stocks.
Orchid Island Capital (NYSE:ORC)
Orchid Island Capital is a REIT that is polarizing amongst REIT investors. The company takes over risk-based mortgage securities from companies like Fannie May. Now, this investment comes with a need for a higher risk tolerance.
The residential housing market is always riskier than industrial or corporate real estate. With that being said, Orchid Island Capital pays out a generous 17.01% monthly dividend yield right now.
The company has been sustainable though, and despite its high yield, it hasn’t missed a monthly dividend since 2013. Hence why you should consider these montlhy dividend stocks.
Monthly Dividend ETFs
There is also a long list of ETFs that pay a monthly dividend as well.
How can Exchange Traded Funds pay a monthly dividend? Well, if we think of an ETF as a basket of stocks, the fund manager can time it so that different companies pay out dividends each month.
There’s no real advantage to selecting an ETF that pays monthly dividend stocks or quarterly. It can provide you with some nice cash flow twelve times a year though!
Global X SuperDividend ETF
A pretty self-explanatory name, this ETF focuses on high dividend paying stocks. This ETF is a global fund that tracks companies from around the world.
A quick glance at the holdings list shows an abundance of banks, commodities, and REITs that compromise the 100 holdings. It does pay out a generous 9.14% distribution yield every month though!
If you aren’t really looking at international companies, there is a Global X US SuperDividend ETF as well.
Invesco Preferred ETF
This ETF holds a majority of the blue-chip US dividend paying stocks. The top-weighted stocks in the fund are all big US banks, as well as other dividend stocks like AT&T, the Southern Company, and Ford. The distribution rate for this fund is 4.95%, and pays out regularly on a monthly basis,
This ETF from the popular iShares line by Blackrock holds 503 different stocks in its portfolio. There’s a wide range of mostly US stocks here with a heavy emphasis on the energy and financial sectors. The fund has a monthly dividend yield of 3.75% and is rated five stars out of five by the site etf.com.
Global X NASDAQ 100 Covered Calls ETF
More commonly known as QYLD amongst its investors, this has always been a popular ETF for dividend buyers. These funds pay a whopping 12.69% monthly dividend to its investors.
You will notice the NAV price does not move as much, so growth is somewhat limited. But it does generate a really nice cash flow each month to your account!
Are Monthly Dividends a Good Investing Strategy?
It’s the same pie cut into more pieces. The one advantage to having monthly dividends is that it provides you with cash flow that you can re-allocated or run a DRIP and re-invest those right into the same asset.
In my personal situation, I love monthly dividend-paying funds. As a younger investor, I’m looking for some stability in my portfolio, while at the same time spreading this new capital out as much as possible to other assets.