How to Find Dividend Stocks That Pay Monthly

Dividend income is a powerful resource for investors, providing a safe and reliable stream of steady, welcome cash.

However, while quarterly dividend payments are the standard, they may not be the best fit for everyone’s own financial needs.

So, here, we’ll explore the benefits of monthly dividends, discuss the qualities to look out for when identifying these stocks, and provide practical tips on how to build a robust monthly dividend portfolio.

How to Find Monthly Dividend Stocks

When searching for good dividend-paying businesses, it is essential to consider the key qualities that make a solid income pick regardless of the regularity of its payout.

For instance, a company’s dividend track record provides valuable insights into its commitment to reward shareholders and generate sufficient cash to sustain its dividend payments.

While past performance doesn’t guarantee future results, a long history of steadily rising dividends indicates a management team that prioritizes shareholder returns. It also suggests the company has generated enough cash to support those dividend payments too.

Furthermore, consistent and increasing cash flow is vital for long-term dividend sustainability. Insufficient cash reserves may compel a company to borrow funds or sell more shares to prop up its dividend payouts. Though such options may provide immediate relief, they are not prudent in the long run.

Calculating the dividend payout ratio can likewise garner valuable insights into a company’s distribution in the long run. While some experts suggest that stocks should have a maximum payout ratio of 80%, this criterion does not pertain to REITs. REITs must distribute more than 80% of their income and often have high depreciation expenses, which reduces income.

It is equally vital to recognize that a temporary increase in a firm’s payout ratio stemming from a singular event may not significantly influence decisions if it does not impact cash flow. Nevertheless, if the payout ratio consistently rises, it could call into question the feasibility of the distribution itself.

And finally, high debt levels increase the risk of loan defaults and potential bankruptcy for a company. Every industry has a distinct tolerance for debt, so professionals frequently compare debt with other financial indicators.

The Best Monthly Dividend Stocks to Buy

Several options stand out as promising investment opportunities when searching for monthly dividend stocks.

For example, the Invesco S&P 500® High Dividend Low Volatility ETF – which tracks the S&P 500® Low Volatility High Dividend Index – is a good choice for those seeking diversified exposure to a raft of various sectors, such as Utilities, Materials, and Consumer Staples.

At the moment, the ETF has a current yield of 3.52% and a reasonable expense ratio of 0.30%, making SPHD an attractive low-cost entry point into the world of monthly-paying dividend funds.

However, if you prefer a stock sporting slightly higher returns, Gladstone Commercial Corporation might be more up your street.

Indeed, GOOD is a diversified real estate investment trust (REIT) with roughly 17.2 million square feet of industrial and office property space spread throughout 27 US states.

Interestingly, by targeting secondary markets, Gladstone aims to capitalize on higher investment yields, which has allowed it to offer a forward distribution of 10.37% today.

Finally, there are few better alternatives than Realty Income Corporation in the realm of blue-chip real estate businesses. In fact, the company has successfully paid over 635 consecutive monthly dividends and has never failed to increase its annual payout in 26 years, with its yield sitting at a healthy 5.17%.

How to Build a 12-Month Dividend Portfolio

A monthly dividend portfolio is a collection of investments deliberately chosen to coordinate their payout schedule across all the months of the year.

When constructing a portfolio that generates monthly dividends, you can opt to procure stocks that offer payments either on a monthly or quarterly basis. Large and mega-cap companies are typically linked with quarterly distributions, whereas specific types of firms – such as REITs and bond funds – are usually associated with monthly dividend payments instead.

Accordingly, you can look for gaps or overlaps in dividend payments by analyzing the dividend payment schedules of the stocks you have shortlisted. Gaps refer to months where none of your selected stocks pay dividends, while overlaps occur when multiple companies pay out in the same month.

Moreover, by regularly reviewing your portfolio, you can assess whether adjustments are needed to maintain a consistent monthly dividend income. Over time, companies may change their dividend policies, and new dividend-paying stocks may emerge. Rebalancing allows you to adapt to market changes and optimize your income stream.

Remember, allocating investments across all twelve months ensures a consistent cash flow throughout the year – and by wisely spreading out your distributions, you can avoid occasions with no income and smooth out the peaks and valleys in your dividend-paying schedule.

How to Protect Your Monthly Dividend Income from Taxes

How to Choose a Dividend Reinvestment Plan (DRIP) for Monthly Dividend Stocks

A Dividend Reinvestment Plan (DRIP) is a program offered by some companies that allow investors to automatically reinvest their dividend payments into additional shares of the company’s stock. While selecting a DRIP for your monthly dividend stocks, there are several crucial aspects to bear in mind.

First, check the availability of a DRIP for the monthly dividend stocks you own. Not all firms have DRIPs, so it is imperative to ascertain which ones provide this alternative. You can obtain this information on the company’s official website, via investor relations resources, or by contacting their investor relations department directly.

Next, look into the enrollment requirements for the DRIP. Some companies may have minimum share criteria for participation, while others may not have any at all.

Furthermore, evaluate the fees and expenses associated with the DRIP. Companies may charge fees for dividend reinvestment, stock purchases, or account maintenance. Compare the costs across different DRIPs to find the most cost-effective option that aligns with your investment goals.

Consider also whether the DRIP allows for fractional share purchases. Since monthly dividend payments may not be enough to buy a whole share, a DRIP that enables fractional share purchases entitles you to reinvest the entire amount, maximizing your investment potential.

Determine the dividend reinvestment frequency of the DRIP as well. Some DRIPs reinvest immediately, while others accumulate and reinvest on a specific date each month or quarter. Choose a DRIP that matches your desired reinvestment frequency and investment strategy.

Lastly, understand how the DRIP determines the price at which dividends are reinvested. Some DRIPs reinvest dividends at the current market price, while others offer a discount or a fixed price. Evaluate which approach provides the optimal value and meets with your investment objectives.

By meticulously considering these factors, you can select a Dividend Reinvestment Plan (DRIP) that caters to your requirements and assists you in capitalizing on your monthly dividend stocks. A DRIP can furnish a hassle-free and automatic method to reinvest your dividends, enabling you to amplify your returns and steadily expand your investment portfolio over time.

The Risks of Investing in Monthly Dividend Stocks

Investing in monthly dividend stocks comes with certain risks that should be considered. Indeed, two of the most important things to be aware of are dividend sustainability and concentration risk.

For instance, while the allure of monthly dividend payments is appealing, assessing the sustainability of those dividends is crucial.

In fact, companies that pay monthly dividends may face increased pressure to maintain a consistent payout schedule and may need help meeting their obligations if they encounter brief periods of low liquidity.

Moreover, concentration risk pertains to the mistake of having a substantial fraction of your portfolio invested in a small number of stocks and industrial sectors.

Consequently, if your portfolio features just a select few companies, the performance of those particular investments may substantially influence your overall returns. Thus, if one or more of the stocks underperforms or suffers adverse circumstances, you could be disproportionately affected.

Conclusion

Building a monthly dividend portfolio can provide a consistent and reliable source of income, helping you meet your financial goals.

Hence, by selecting solid dividend stocks and diversifying your portfolio, you can maximize the benefits of monthly distributions and reap the cash rewards for years.

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.