Dividend stocks are popular because they pay income to the investor. The majority of dividend stocks pay their dividends on a quarterly basis. This is good but investors only get 4 dividend checks per year. The investor must wait three months in between dividend checks. For example, Atria Group (MO) is a popular dividend stock that pays a high dividend yield of 4.6% per year. MO pays quarterly dividends of $0.41 and trades for $35.91. The investor in MO gets a quarterly dividend yield of 1.14% (0.41/35.91) or a monthly dividend yield of 0.38% (1.14/3). OK, who wants to get paid only 0.38% each month?
On the other end, an investor can invest in a stock paying monthly dividends. This is better as it pays the investor monthly. A good example of a monthly dividend stock is Main Street Capital (MAIN). This is a business development company that trades at $25.15. MAIN pays a monthly dividend of $0.145 for an annual dividend yield of 7.08%. This equates to the investor getting 0.58% dividend yield each month. This is good and deserves a place in most income portfolios.
However, there is a method to increase monthly dividend yields significantly higher. This method is a stock rotation model to capture higher dividends each month. Using this method, the investor has an opportunity to make from 3% to 12% in dividend yield each month.
How to create high yield monthly dividend stocks
While most income investors look to quarterly or even monthly dividend stocks for income, there is a third alternative to evaluate. This opportunity is in stocks that pay annual dividends or semi-annual dividends. Since these stocks pay dividends less frequently, there is usually bigger than if spread across 3 or 12 months. The investor can combine several of these annual or semi-annual stocks for more dividend income and higher monthly dividend yields. For example, National Grid Transco (NGG) engages in the transmission and distribution of electricity and gas in Great Britain and northeastern United States. NGG paid a semi-annual dividend of $2.01 on May 30, 2012. With NGG trading at around $50 per share, the dividend was a 4.0% dividend yield. You can see how much higher the dividend yield of 4.0% is compared to MO at 0.38% per month and MAIN at 0.58% per month. The table below identifies a list of stocks with anticipated dividend dates in the coming months. Investors can rotate into these stocks before the dividend and exit after the dividend record date. These stocks should be added to the investor's watchlist to receive earnings and dividend news. Investors should purchase the stock 2-4 weeks before the dividend date to get a good stock price. Some of these stocks see swift increases in stock price before the dividend.
How to boost your dividend and get downside protection
To make the most of the dividend opportunity, investors must purchase the stock early before the price increase. In general, stocks will increase in price before the dividend payment and decline following the record date. As shown in the table below, some of these stocks offer options. For example, NGG offers calls on its stock. The investor can purchase the stock and set up a covered call. A covered call is a trade where the investor sells 1 call option for every 100 shares they own. Selling the call gives the investor a premium for the right to call away the stock at the strike price. In the case of dividend capture, the investor wants to have the stock called away as they will usually sell following the record date anyway. Back to NGG, the stock is trading at $52.24 and the investor can sell 1 call at a 50 strike price of $2.50 per call. This means the investor will receive $250 for each sold call but must let the stock get called away at $50. To calculate profit, the 50 strike call is $2.25 in the money so the investor is only profiting $25 on the $250 total. However, the 50 strike price is 5% below the market value of the stock. This gives the investor a 5% downside protection and boosts the dividend by $25.00.
In conclusion, the investor will add the dividend amount to the covered call profit to get their total return for the month. If using the covered call, the investor should sell a call in the expiration month of the record date. Each dividend trade should be allotted a minimum of 2 weeks before the dividend record date and preferably 3-4 weeks. Investors should consult a tax expert on the taxation of the dividends and covered call transaction.
Company profile and equity summary scores
CPFL Energia S.A. (CPL) engages in the generation, distribution, and sale of electric energy in Brazil. It generates electricity through hydroelectric, thermoelectric, sugarcane biomass, and wind power plants. CPL has an equity summary score of 9.0 out of 10 for a Bullish outlook.
France Telecom SA (FTE) provides fixed telephony and mobile telecommunications, data transmission, Internet and multimedia, and other value-added services to consumers, businesses, and telecommunications operators under the Orange and France Telecom brand names. FTE has an equity summary score of 9.5 out of 10 for a Very Bullish outlook.
Eni SpA (E), an integrated energy company, engages in the exploration, production, transportation, transformation, and marketing of oil and natural gas. E has an equity summary score of 9.9 out of 10 for a Very Bullish outlook.
Aviva plc (AV) provides insurance, savings, and fund management products and services worldwide. AV does not have an equity summary score.
Vale S.A. (VALE) engages in the exploration, production, and sale of basic metals in Brazil and internationally. The company is also involved in fertilizers, logistics, and steel businesses. . VALE has an equity summary score of 6.3 out of 10 for a Neutral outlook.
Telefonica, S.A. (TEF) provides fixed and mobile telephony services primarily in Spain, Latin America, and rest of Europe. TEF has an equity summary score of 7.3 out of 10 for a Bullish outlook.
IRSA Investments and Representations, Inc., (IRS) engages in a range of diversified real estate related activities in Argentina. IRS has an equity summary score of 9.0 out of 10 for a Bullish outlook.
National Grid plc engages in the transmission and distribution of electricity and gas in Great Britain and northeastern United States. NGG has an equity summary score of 8.8 out of 10 for a Bullish outlook.
SK Telecom Co., Ltd. (SKM) provides wireless telecommunications services principally in Korea. SKM has an equity summary score of 4.3 out of 10 for a Neutral outlook.
Portugal Telecom, SGPS S.A. (PT) provides telecommunications services in Portugal, Brazil, sub-Saharan Africa, and Asia. PT has an equity summary score of 3.3 out of 10 for a Neutral outlook.
Giant Interactive Group Inc. (GA) develops and operates online games in the People's Republic of China. It primarily offers multiplayer online role playing games (MMORPGs). GA has an equity summary score of 9.8 out of 10 for a Very Bullish outlook.
Mobile TeleSystems OJSC (MBT) provides telecommunications services primarily in the Russian Federation, Ukraine, Uzbekistan, Armenia, and Belarus. MBT has an equity summary score of 8.8 out of 10 for a Bullish outlook.
Veolia Environnement S.A. (VE) provides environmental management services to public authorities, industrial and commercial services customers, and individuals worldwide. VE has an equity summary score of 3.1 out of 10 for a Neutral outlook.
Chunghwa Telecom Co., Ltd. (CHT) provides integrated telecommunication services primarily in Taiwan. VE has an equity summary score of 4.3 out of 10 for a Neutral outlook.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.