Companies that pay high-yield monthly dividends have a unique mix of characteristics that make them especially well-suited for investors seeking consistent income.
How to find companies that pay good dividends monthly
For investors who use their dividend stock portfolios to generate passive monthly income, one of the main concerns is the sustainability of the company’s dividend.
A dividend cut can indicate two things:
- The business is not doing well enough to sustain the dividend.
- Management is no longer interested in rewarding shareholders with dividends.
Any of these should be considered an automatic signal to sell a dividend stock.
Of the two reasons listed above, #1 is the most likely. Therefore, it is very important to continuously measure the financial viability of a company’s dividend.
The best way to measure this is by using the payout index. The payout ratio is a mathematical expression that shows what percentage of a company’s profits are distributed to shareholders as dividend payments.
Top 5 Monthly Dividend Stocks
The following list represents our top 5 monthly dividend stocks at this time, based on their projected total annual returns over the next five years.
The list is ranked in ascending order from lowest to highest expected annual return for the next five years.
| Company | Guy | Yield | payout | Growth | P/E |
|---|---|---|---|---|---|
| Enerplus Corporation | Acción | 5,65% | 12% | 0% | 12.1 |
| Inter Pipeline Ltd. | Acción | 22,70% | 91% | 1% | N/A |
| Pembina Pipeline Corporation | Acción | 10,26% | 55% | 5% | 6,6 |
| Main Street Capital Corporation | Acción | 11,12% | 96% | 5% | 9.4 |
| LTC Properties | Acción | 7.4% | 78% | 0% | 10.5 |
Why monthly dividends are important
Monthly dividend payments are beneficial to a particular group of investors: retirees who rely on dividend stocks for income.
That being said, monthly dividend stocks are better in all circumstances (all else being equal) because they allow returns to be compounded more frequently. More frequent compounding leads to better total returns, especially over long periods of time.
Over the long term, compounding monthly generates slightly higher returns than compounding quarterly. Everything helps.
That being said, it may not be practical to manually roll over dividend payments on a monthly basis. It is most feasible to combine monthly dividend stocks with an average-cost dividend reinvestment plan in your favorite dividend stocks.
The last benefit of monthly dividend stocks is that they allow investors to have more cash on hand to make opportunistic purchases. Cash isn’t often important, but when it is, it’s very, very important.
Case in point: Investors who bought a large basket of stocks at the bottom of the 2008–2009 financial crisis are likely to see a triple-digit total return on those purchases today.
The Dangers of Investing in Monthly Dividend Stocks
Monthly dividend stocks have characteristics that make them attractive to investors looking for a steady stream of income. Regularly, these are retirees and people planning their retirement.
Investors should note that many monthly dividend stocks are highly speculative. On average, monthly dividend stocks tend to have high payout ratios.
A high payout ratio means there is less room for error to continue paying the dividend if business results suffer a temporary (or permanent) decline. Stock with best dividends
Additionally, a high payout ratio means that a company is holding back little money to invest in future growth. This can lead management teams to aggressively leverage their balance sheets, fueling growth with debt.
High debt and a high payout ratio are perhaps the most dangerous combination for a potential reduction in future dividends.
That being said, there are a handful of high-quality monthly dividend payers out there. Chief among them is Realty Income (O)of high-quality monthly dividend payers out there. Chief among them is Realty Income (O). Realty Income has paid increasing dividends (on an annual basis) every year since 1994.
The real estate income example shows that there are high-quality monthly dividend payers out there, but they are the exception rather than the norm. We suggest investors do thorough research before investing in any monthly dividend payer. Stock with best dividends
conclusion
Financial freedom is achieved when income from passive investments exceeds expenses. But the sequence and timing of your passive income investment payments can be important.
Monthly payments make it easier to match portfolio income with expenses. Most expenses recur monthly, while most dividend stocks are paid quarterly. Investing in monthly dividend stocks matches the frequency of portfolio income payments with the normal frequency of personal expenses.
Additionally, many monthly dividend payers offer investors high returns. The combination of a monthly dividend payment and a high yield should be especially attractive to investors. Stock with best dividends
