Before diving into this article, I want to ensure we all know what dividends are. Most of us know these as payments from companies for holding their stocks. Dividends are a small portion of the company’s profits 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?
Monthly Dividends Introduction
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.
Companies that have likely reached close to maximum expansion 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 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 quarterly. 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 monthly. 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 monthly dividend payers are not company stocks. Certain financial mechanisms allow REITs and ETFs to pay monthly rather than quarterly.
How Do REITs Work?
REITs are an interesting asset class to dissect. They mostly operate as a company, but the asset is modeled after a mutual fund.
REITs allow investors to pool their capital into the asset and invest in physical real estate.
In a way, it’s like crowdsourcing money to buy real estate. Since rent is usually paid monthly, the REIT can pay out monthly dividend stocks!
Although you invest in the REIT, you don’t own the real estate. However, you profit from the value and income the real estate makes. This is where the REIT dividends come into effect.
The income you receive as dividends is the rent the REIT collects from people who use the real estate. To qualify as a REIT, they must meet specific requirements.
I won’t go into detail, but the most important qualifier is that they pay 90% of taxable income from the real estate as a shareholder dividend. What are some REITs to invest in?
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REITs Monthly Dividends Stocks
1. 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 stock yield of 4.38% and has raised this yearly for over 25 consecutive years.
That’s right, 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 fall 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 why it has raised its dividend so consistently!
2. EPR Properties (NYSE: EPR)
Another generous monthly dividend stock-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 proves 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.
3. 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 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 in 2010. Don’t sleep on these monthly dividend stocks.
4. 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. That said, Orchid Island Capital currently pays a generous 17.01% monthly dividend yield.
The company has been sustainable, though, and despite its high yield, it hasn’t missed a monthly dividend since 2013, so you should consider these monthly dividend stocks.
Best Trading Companies
Monthly Dividend ETFs
There is also a long list of ETFs that pay a monthly dividend.
How can exchange-traded funds pay a monthly dividend? If we think of an ETF as a basket of stocks, the fund manager can time it so that different companies pay out monthly dividends.
There’s no real advantage to selecting an ETF that pays monthly dividend stocks or quarterly. It can give you some nice cash flow twelve times a year, though!
1. 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 glance at the holdings list shows an abundance of banks, commodities, and REITs that compromise the 100 holdings. It pays a generous 9.14% distribution yield every month, though!
If you aren’t looking at international companies, there is also a Global X US SuperDividend ETF.
2. 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 and other dividend stocks like AT&T, the Southern Company, and Ford. The distribution rate for this fund is 4.95%, and pays out regularly every month,
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, heavily emphasizing 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.
4. 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.
This ETF generates income by selling covered calls on NASDAQ 100 stocks. It is an interesting way to create an ETF and utilizes advanced options and strategies.
The NAV price does not move as much, so growth is somewhat limited. But it does generate a nice cash flow to your account each month!
Final Thoughts: Monthly Dividends
Let’s say it can be. Learn to research these ETFs and REITs to ensure a high monthly yield is sustainable over the long run. In the end, monthly dividend stocks are like a stock split.
It’s the same pie cut into more pieces. The one advantage of monthly dividends is that it provides cash flow to reallocate or run a DRIP and re-invest those right into the same asset.
In my 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 to other assets as much as possible.
