Dividend Investing for Monthly Income

After you have selected the dividend growth stocks that fit your selection criteria, it is time to research their payment dates. Most dividend investors try to create a monthly dividend income stream when creating their dividend portfolios. The problem with this strategy is that most stocks send the checks to their stockholders quarterly as opposed to monthly. In order to create a monthly income stream an investor has to limit their portfolio only to stocks which pay a dividend every month, or try to include stocks which pay quarterly dividends whose payment schedules do not overlap.

Another issue that our investor could experience is properly weighting the stocks in his/her portfolio. I am a firm believer in starting out with an equal weighted portfolio, since this strategy doesn’t favor an individual stocks or group of stocks by initiating an above average sized position there. This would distort the levels of dividend income that the investor would receive every month, unless of course stocks that have similar yield and growth characteristics are selected, which is very unlikely.

The dividend investor could achieve a smooth initial monthly income stream by overweighting lower yielding stocks and underweighting higher yielding ones.

Add to this the fact that dividend growth investors need to create a portfolio with at least 30 stocks in order to reduce systemic risk and the things start looking even more complicated. Yet another issue is sector diversification – investors who were overexposed to financials in 2008 experienced a lot of dividend cuts, which set them several years back from reaching their dividend income goals.

Let’s apply the principles that we learned about in a sample portfolio consisting of 3 stocks, which have different payment schedules. The stocks are ADP, JNJ and PG. ADP pays dividends every January, April, July, and October. PG pays dividends in February, May, August and November, while JNJ pays dividends in March, June, September and December. You could check my analysis of ADP, JNJ, and PG here, here and here.

If we start out with $30,000 divided equally between the three stocks, and purchased everything at the closing prices for 2007 we would have:

224.57 Shares of ADP
136.20 Shares of PG
149.93 Shares of JNJ

Our Dividend Income by month in 2008 assuming an equal weighting would be:

The initial yield and the dividend income are not big initially. This sample dividend growth portfolio however could increase your dividend income over time.

Disclosure: Author owns shares of JNJ, PG and ADP.

Comments

[User 283977:]

Why not buy AGG? That gives monthly dividends with a yearly yield of 4.86%. With an investment of 30k, that gives you 121.50 per month. That's more than twice the monthly yield of the ADP, JNK, PG play. Since AGG is kind of like an EFT, it seems the risk here would be no greater than the combined risk of those three stocks. Am I missing something here?

2008 Dec 04 02:17 PM

[Do not own BRK:]

AGG is a Bond ETF - this article is about investing
in Stocks for Income (& implied is that there is a
possibility of growth to offset inflation). AGG would
be a good ETF for the bond portion of someones
total portfolio. This school of thought is about the
ability to have both growing dividends and capital gains
over your entire lifetime. Bonds are eaten up by
inflation over time.

2008 Dec 04 03:32 PM

[Chirag Amin:]

Another option to consider for monthly dividend income is Realty Income (O). This REIT stock pays a monthly dividend, and its yield is at 9.40%.

2008 Dec 04 05:46 PM

[Vancan:]

Dividend Growth Investor:

Thank you for your many posts. However, it is very difficulty to see the forest for the trees. Could you publish a list of stocks you have disclosed as owning and a list of stocks that you have said you are watching. I have attempted to make such a list, but I am not sure I have found all of your many analysis articles. And, as many were written before the recent crash, I am wondering which you have sold or are no longer considering. Further, many which you did not own at the time of the article you may now own, but we would not know that. None of us would just duplicate your purchases, as they may not fit our investment profile, but we might want to use your list as a starting point, just as you pay attention to the Dividend Aristocrats for a similar reason.

Thanks

2008 Dec 04 07:32 PM

[anarchist:]

Investment profile smofile...........your driving me nuts. With the market stairs-stepping down I would say cash is the best dividend investment or at least hedge your long positions with a stock that shorts the Market.

2008 Dec 05 10:28 AM

[notsosmart:]

youdont really need a monthly income. every 3 mos. should be ok. i dont get it.who cant divide a 3 mos income?

2008 Dec 05 01:15 PM

[rogerk2:]

I use a similar method but reduce all purchase options to a common $100/mo net return (after any applicable taxes, currency conversion rates, etc.). Then I look at how much it costs to buy the number of shares necessary to net $100/mo and try to space them out and not have much sector or product overlap. I use the same process for quarterly dividends; I just change the formula to $300/quarter net return.

This method let's me compare a variety of dividend yields on a consistent basis, i.e., what does it take to generate $100/mo net returns from dividends?

2008 Dec 05 02:55 PM

[Jack Bauer:]

I read the article and the following posts with interest. I am about 5yrs from retirement and have 50% of my savings in a money market fund.

Are there suggestions for investing to get monthly income other than the 3 stock alternatives? I am interested in EFT, mutual funds, stock or a combination. I am not interested in bonds. I am thinking of investing about $200k and would like a steady monthly income.

I know that there is no one answer to this question and I know there are no guarantees. I am looking for suggestions.

thank you.

2008 Dec 06 07:39 AM

[mplaut:]

I suggest MLPs in particular LINE and also MWE.

You have to do some research. You can look at the MLP group in Investors Village and/or the LINE or MWE message boards in Yahoo. Those are good places to start.

Good luck.

2008 Dec 07 06:02 PM

[Foosie:]

You can get monthly income from electric utilities. You stagger your investments according to their different pay dates. While each pays every 3 months, if you stagger your holdings, you can get monthly payouts. I have a list if you want it.

2008 Dec 10 11:23 PM

[starfleet1:]

There are a multitude of investment vehicles that are relatively safe and provide income substantially in excess of 4% or 5% annually. One of my favorites is Canadian Energy Trusts that are currently paying around 14% to 15%. Music publishing, coal leases, water rights and other vehicles can also provide incomes in excess of 5% annually. You can look at

www.ezinearticles.com/...

20 sources of Passive Income on ezinearticles.com for more information as well as the busines owned program:

www.ezinearticles.com/...

2008 Dec 18 01:59 PM