Monthly dividend stocks, which pay dividends every month of the year, can provide predictable income. Learn more about why you may want to invest in monthly dividend stocks.
What are monthly dividend stocks? What dividends pay monthly? We'll detail a monthly dividend, how it differs from regular dividends and the advantages and disadvantages of receiving monthly dividends. Let's dive in so you know how to begin investing in these income producers.
Monthly dividend stocks are a group of equity investments that trade like stocks and pay monthly dividends. These stocks provide a more regular payment and, in many cases, a superior payout to ordinary equity investments. These stocks aren't necessarily the best dividend stocks by sector, but they can be reliable payers and a cornerstone of an income investment portfolio.
The most commonly encountered stock dividend payouts include the following:
Monthly dividend stocks work like regular dividend stocks, but investors should note a few differences. These are important to understand when searching for top dividend stocks and how to invest in them. The first and most apparent is that these stocks pay their dividend monthly instead of quarterly, primarily to attract buy-and-hold income investors such as retirees and institutional investors.
This is how it works:
Any company could pay a monthly dividend if it wanted to, but most don't. In the case of regular corporate business, corporations are limited by the quarterly reporting cycle. They report quarterly and may not know how much profit they have available for distribution until after the quarterly reports end. However, other business structures have a more visible cash flow and can budget monthly dividends. These include REITs, BDCs and closed-end funds.
REITs are real estate investment trusts. These companies invest in real estate and can apply many strategies, ranging from mortgage-backed securities to renting commercial property. When they choose taxation as a REIT, they agree to pay at least 90% of their taxable income as dividends. Their income is derived, in most cases, from regular monthly payments, either rent or mortgage. There is no correct number of dividend stocks to own, but consider having a diversified approach.
A BDC is a business development company and is a form of closed-end fund. These funds act like venture capitalists by investing in middle-market loans to small and medium-sized businesses. BDCs maintain a stricter standard than most lending operations.
They must lend business assistance to ensure the investments have as much chance for success as possible. BDCs tend to invest in debt and debt-related vehicles, providing holders with regular returns.
Closed-end funds are like mutual funds. However, a mutual fund can issue unlimited units based on invested dollars, while a closed-end fund has limited shares. That limit allows them to trade on the open market like a stock, which a mutual fund can't do. Mutual funds are only bought or sold after market hours. Some, but not all, closed-end funds pay a monthly dividend. The ones that do tend to invest in debt-related securities and bonds.
There are many advantages to monthly dividend stocks. These are only a few of the most commonly cited reasons for owning monthly paying dividend stocks.
Monthly dividend stocks pay three times as often as regular quarterly dividend stocks and 12 times more frequently than companies that pay annually. Retirees and regular investors may need or want to count on a steadier cash flow. For a retiree, budgeting and coping with life-altering events with a more regular cash flow is far easier.
Monthly dividend stocks are advantageous because they can give steady returns in all markets, even down markets. Steady returns are good for the account's health and the account holders' psychology. Nothing is worse than watching an account dwindle in size during a down market.
Compounding, or reinvesting dividends, is a pillar of investing. Monthly dividend stocks allow quicker compounding and more significant returns over time because they pay out more frequently.
Monthly dividend-paying stocks tend to yield higher than the average S&P 500 company because they tend to be tax-advantaged investment vehicles that aim to generate income for average investors. For example, some monthly paying dividend stocks are REITs. Real estate is integral to any investment strategy but is not always accessible to average investors. REITs alleviate this problem by owning real estate in a trust and selling shares or units to investors. Investors are then able to benefit from capital appreciation and rents.
What is yield? It is the payment you can expect from an investment in percentage form.
What is a good dividend yield? One the company can sustain.
Gladstone Commercial is an example of a monthly dividend stock. It is a REIT focused on office and commercial properties. It makes its money via monthly rent payments. It pays its dividend out of those payments, which are highly visible and easy to manage. This is part of why the company can make the regular monthly payment and sustain it.
Gladstone Commercial pays $1.20 in annual dividend payments. That is $1.20 over the entire year, not each month. The monthly payment is 10 cents, which, over 12 months, equals the $1.20 payout. This formula is distinctive from the dividend yield formula, which lays out the payout in percentage form.
Monthly dividend stocks carry certain risks, including the following:
Monthly dividends are great for income because they tend to be higher-yielding assets and pay a regular monthly dividend. Income-oriented investors may find them attractive, specifically those who plan to live off the distributions.
The only caveat is that many companies that pay monthly dividends are REITs, BDCs and actively managed closed-end funds that may pay ordinary and qualifying dividends with different tax implications.
Check out some answers to frequently asked questions about companies paying monthly dividends and what dividend stocks pay monthly.
Like all investments, monthly dividend stocks can be worth it, but it depends on your goal. Monthly dividend stocks can fit the bill if you want to generate large amounts of income.
One of the highest-paying monthly dividend stocks in 2023 is SL Green. SL Green is a REIT focused on office space in Manhattan. It was yielding nearly 9% in annual distributions.
Monthly dividend stocks work like other dividend stocks, except they pay monthly dividends. Typically, stocks pay dividends quarterly, but some investment vehicles pay monthly.
Thomas Hughes has been a contributing writer for DividendStocks.com since 2019.
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Associate of Arts in Culinary Technology
Market watcher, trader and investor for numerous websites. Founded Passive Market Intelligence LLC to provide market research insights.