There is a reason that most mortgages are paid monthly and not quarterly. Banks are looking for reassurance the payments will continue to come in. In much the same way, many investors find comfort in owning stocks that pay monthly dividends. There are several advantages to receiving dividends each month over the traditional quarterly, semi-annual or annual dividends. Here are a few, along with some monthly dividend payers:
Quarterly, semi-annual or annual dividends will produce an erratic income each month. Depending on the mix and payment timing of securities in your portfolio, there may not be two months in which you receive the same amount of dividend income. Stocks that pay monthly dividends will help smooth it out some.
Easier to Budget
Retirees living on a limited income may find monthly payments easier to work with. If most of their bills are due on a monthly basis, owning income securities that pay dividends each month makes it easier to balance the budget.
For me the most compelling argument for monthly dividends is the compounding effect. Each dollar I receive today can be immediately put to work earning additional income. Given the choice of being paid now or later, most people will choose to be paid now.
The Monthly Dividend Company
Serious about paying monthly dividends? I would say Realty Income Corp. (NYSE:O) with its registered trademark of “The Monthly Dividend Company” is dead serious about paying monthly dividends. As stated on the company’s website:
Our primary goal is to provide dependable monthly income to our shareholders. We do this by acquiring and owning retail real estate that generates dependable lease revenue which we pass on to our shareholders in the form of monthly dividends.
We have been paying monthly distributions throughout our 41-year operating history. Since becoming a public company and being listed on the New York Stock Exchange in 1994, we have regularly increased the amount of the dividend. Currently the annualized dividend rate is $1.7235 per share. [5.30% yield]
There are not many individual stocks that pay monthly dividends. For monthly income, an investor will need to look at closed-end-funds, exchange traded funds and trusts. Below is a sampling of these:
Monthly Bond Funds
- iShares Barclays 1-3 Year Credit Bond (NYSEARCA:CSJ) | Yield: 3.73%
- Vanguard Short-Term Bond ETF (NYSEARCA:BSV) | Yield: 2.74%
- Vanguard Intermediate-Term Bond ETF (NYSEARCA:BIV) | Yield: 4.32%
- Vanguard Long-Term Bond ETF (NYSEARCA:BLV) | Yield: 5.16%
- Baytex Energy Trust (NYSE:BTE) | Yield: 6.2%
- Enerplus Resources Fund (NYSE:ERF) | Yield: 9.4%
- Pengrowth Energy Trust (NYSE:PGH) | Yield: 8.5%
- Penn West Energy Trust (NYSE:PWE) | Yield: 8.8%
- Provident Energy Trust (PVX) | Yield: 11.6%
Special Purpose Funds
- Enerplus Resources Fund (ERF) | Yield: 9.4%
- Eaton Vance Tax-Adv. Global Dividend Oppor. Fund (NYSE:ETO) | Yield: 7.7%
- The Gabelli Global Utility & Income Trust (NYSEMKT:GLU) | Yield: 6.3%
- Pimco Global Stocksplus Income Fund (NYSE:PGP) | Yield: 10.5%
- LMP Real Estate Income Fund Inc. (NYSE:RIT) | Yield: 8.2%
For some, monthly dividend payments are worth seeking out. Personally, I will buy a security that pays monthly dividends if it meets my criteria and it is the best option available, but I prefer quarterly dividends due to the lower administrative burden. The important question is not how often a stock pays its dividend, but can it sustain and grow the dividend.
Disclosure: Long O, CSJ, BSV, BIV, BLV, ETO. See a list of all my income holdings here.