Below you will find a list of companies and ETFs that issue dividends on a monthly schedule. Some investors prefer monthly-dividend payers because of the consistent income these companies and funds offer. More about monthly dividend stocks.
Investors who want income and reasonable growth are attracted to dividend stocks. Companies that issue dividends are not the high-flying growth stocks that aggressive investors love. However, because they are slow, steady performers the stock price of these companies is not as affected by volatile markets. For that reason, dividend stocks give shareholders a dividend as a reward for owning their stock.
5 Things to Consider About Investing in Monthly Dividend Stocks
Many companies pay dividends on a quarterly or annual basis. However, a select group of companies pays out monthly dividends. For income investors, the ability to have a predictable source of income provides peace of mind. Monthly dividend payments can help them supplement their retirement income without having to dip into the principal of their investments. Even investors who do not need regular income can benefit from re-investing the monthly dividends to buy additional shares.
Many fixed-income investors rely on regular income from their investments to help pay the bills. However, dividends that pay at quarterly intervals, and bonds that pay out semi-annually, may leave gaps and that can be a challenge when trying to pay monthly bills. These gaps can lead investors to dip into the principal of their retirement fund.
One way these investors can mitigate these gaps is by having a portion of their dividend investments in stocks that pay monthly dividends.
Many casual investors assume that cash flow in the stock market game is achieved by buying low and selling high from the among the most volatile stocks on Wall Street. This investing strategy may work for active traders with access to analytical software and a mastery of market algorithms, but it doesn’t bode well for the average investor. By contrast, dividend investors who build up a portfolio of shares in solid companies can quickly see the trickle of dividends from each security come together and form a mighty stream of free cash flow.
Like all investments, investors should do their due diligence before investing in a monthly dividend stock. A company’s dividend yield is important, but the yield is tied to a company’s stock price. Stock prices and yields move in opposite directions. Therefore, one company may report a higher yield than another company but pay less of a dividend. It is also important to look at a company's track record of paying the dividend and whether they are increasing or decreasing the payout. In other words, the decision to invest should not be made based solely on whether the company has a high dividend.
What Are Dividends?
Dividends are payments that a company makes to its shareholders. These payments come out of a company’s profit. On a balance sheet, dividends are recorded as current liabilities.
An investor can receive the money directly into their bank account and use it to cover their monthly expenses. They can also reinvest their dividend payment to buy additional shares of the company’s stock and grow their investment portfolio. This ability to receive regular income is the primary reason dividend stocks are appealing to income-oriented investors.
Most stocks that pay dividends have a quarterly dividend payout—but some stocks do indeed pay monthly dividends. For dividend investors, these monthly dividend stocks offer a consistent source of monthly income.
Why Do Companies Pay Dividends?
The simple answer is because they can afford it. A dividend is paid out of a company’s profit before it makes it to the bottom line as retained earnings. A company can reward shareholders in two ways: Through stock price appreciation (i.e. capital growth) or by issuing a dividend. To pay a dividend, a company needs to be able to have the cash flow needed to support the dividend.
A young, fast-growing company will typically reinvest profit into their business because shareholders expect aggressive growth and are willing to assume the heightened risk that comes with that growth. Companies that are into the mature phase of their business cycle may not be able to deliver the same return for their shareholders by reinvesting their profit into the business. For this reason, they decide to take a portion of their profits and directly pay shareholders as a dividend. This does not mean they won’t undertake capital investments or take on debt. It just means that their primary objective is stability, not aggressive growth.
Dividend-paying companies are commonly in defensive sectors like utilities and health care. Companies that manufacture consumer staples also fall into this category. Defensive stocks tend to hold their value in any economy. For example, people get sick regardless if the economy is doing well or not, so pharmaceutical stocks tend to be impervious to recessions. In the same way, consumers still need to pay for electricity, water, and natural gas so these stocks fall into the defensive category.
Why Do Companies Issue Monthly Dividends?
Casual investors are often familiar with larger, blue-chip stocks that pay quarterly dividends. But they may be less familiar with other types of companies, such as a real estate investment fund (REIT), that generate cash flow so consistently they can pay their investors a monthly share of the profits. These REITs are just one of the many types of companies that have a consistent enough cash flow to provide a monthly payout to shareholders.
Two special kinds of dividend stocks that are more likely to issue monthly dividends are REITs and business development companies (BDCs).
Companies in these two sectors are required to pay out at least 90% of their taxable income as dividends. Because a high percentage of their revenue comes in the form of monthly rental income, they have a cash flow that allows them to pay their dividends monthly.
How Do You Choose Monthly Dividend Stocks?
One of the most common metrics that investors use when comparing the dividend of one company to another is the dividend yield. The dividend yield is a ratio that expresses the company’s annual dividend compared to its share price as a percentage. The calculation for dividend yield is:
Annual dividend/Share price
To calculate dividend yield, let’s look at this example:
Company A announces a $1.75 per share annual dividend. The stock costs $45 per share.
Company B announces a $2 per share annual dividend. Their stock costs $50 per share.
To calculate the yield, you would simply divide the announced per share annual dividend by the share price.
For company A, that would be 1.75/40 = 0.043 (4.3%)
For company B, that would be 2/50 = 0.04 (4%)
Simply put, investing $10,000 in Company A would produce $752.50 of annual dividend income, or $62.70 of monthly dividend income if they pay monthly.
That same $10,000 in Company B would produce $800 in annual dividend income or around $66.66 of monthly dividend income.
Assuming all other fundamentals were the same, income-oriented investors would prefer to invest in Company B because of the slightly higher payout despite Company A has a higher yield.
This would hold as long as the two companies maintained their current dividend. If Company A in the next month, increases its dividend to $2 and its stock price stays the same, their monthly payout would rise to $71.66 which would make their stock more attractive.
There are a number of high dividend stocks (at least in terms of dividend yield) and they come from a variety of industries like finance, utilities, and real estate. However, not all issue dividends on a monthly basis.
A more useful measurement for investors when deciding which dividend stocks to buy is the dividend payout ratio. The dividend payout ratio, which is also known simply as the payout ratio, tells investors how much profit a company is returning to shareholders as a dividend. The formula for the dividend payout ratio is as follows:
Dividend Payout Ratio = Dividends Paid/Net Income
What Caution Should You Take When Investing in Monthly Dividend Stocks?
Many companies issue monthly dividends to maximize shareholder value. However, like any investment, investing in monthly dividend stocks contains risks. Many of these risks can be anticipated if an investor does their due diligence in examining a company's business.
Investors need to look at a company’s history of paying monthly dividends. But past dividend performance does not mean that a company can sustain its monthly dividend. To get a sense of this, investors should look at a company's financial statements including their balance sheet, income statement, cash flow statement and key performance and profitability ratios. These documents will provide information on how much cash a business is generating and how that cash is being deployed.
In addition to making sure that a company has a reliable history of paying dividends, investors need to be aware of any cuts in monthly dividends. Although a company may have many reasons for cutting its dividend, it may mean that the company's performance is slowing to a point where a monthly dividend may eventually become unsustainable. Sometimes, the company may simply need to change to a quarterly or annual dividend schedule. However, in the worst-case scenario, the company may decide to stop issuing a dividend altogether.
Should You Invest in Monthly Dividend Stocks?
The regularity with which these monthly dividend payers issue their dividends is appealing to dividend investors who want to quickly grow the value of their stock portfolio. By contrast, a dividend investing strategy that relies on a payout every four months will take longer to actualize in terms of portfolio growth.
A list of stocks that include securities with a frequent dividend payout may not always give dividend investors the highest dollar amount per share in terms of annual dividend, but the high-dividend yield of these companies are often a sizable percentage of the share price—more so than those high-dividend stocks issued by companies making a quarterly payout.
Companies that have a policy of issuing monthly dividends do need to have cash on hand to make a monthly payout, and businesses in these industries typically have the cash or cash flow to facilitate these dividend payments.
Many of the stocks on a list of stocks to buy for monthly dividends are actually not shares of a company, but dividend exchange-traded funds (ETFs). These ETFs are somewhat like mutual funds: They are a pooled investment vehicle comprised of multiple securities in one focused area (in this case, companies that pay monthly dividends). This allows each individual investor access to a greater degree of diversification. However, unlike a mutual fund, investors do not place cash into an ETF, but rather purchase shares.
Investors may still wish to browse the list of dividend-producing stocks that payout dividends on a monthly basis and assemble their own list of dividend stocks. An enterprising investor with a good understanding of the market and a penchant for fundamental analysis of a business may even be able to pick some companies that will see dividend increases over time, as the company grows larger. Keep in mind that when looking for monthly dividend payers, there will be a number of middle-market companies that may not be famous for their dividend distribution but are often above the average dividend payout in their industry.
However, it’s important to remember that as companies expand, they may allocate their profits toward growth and reinvestment instead of paying shareholders their dividend—which could result in a temporary dividend reduction or a temporary suspension of dividends. This would be a problem for an investor who relies on monthly income. On the other hand, it might be ideal for those looking for dividend growth stocks that will payout in the future.
Monthly Dividend Stocks
Monthly dividend stocks provide a service to income investors. This is particularly true for retired investors who need to preserve as much of their principal as possible. With life expectancies increasing, investors need to plan to have their retirement savings last longer than they may originally have expected.
Most income investments, such as bonds do not provide a regular source of income. Bonds will typically make semi-annual payments despite no longer being based on paper coupons as they did in the past. Many stocks pay dividends quarterly, but that is not always helpful to deal with recurring monthly medical expenses and other regular bills. This is where monthly dividend stocks can come in handy.
While investors should not commit the entire income side of their portfolio to monthly dividend stocks, having a reliable stable of these steady performers can help ensure a predictable source of income when bonds and other dividend stocks are not paying out.
Additionally, investors who own shares of dividend stocks that provide monthly dividends will appreciate the rapidity with which their portfolio generates cash though they will need to pay income tax on those dividends.
If you’re looking to become one of the dividend aristocrats whose income stream is augmented by dividend payers, look no further than this list. This list of dividend stocks to buy among the markets monthly dividend paying companies and ETFs will help you build a strong dividend portfolio and allow you to see which ones have the best current yields and prospects for growing your portfolio.