Imagine having a portfolio of monthly dividend paying stocks that puts chunks of money right into your account each month – paying all of your bills with some extra left over.
Investors seeking income often ask themselves what dividend stocks pay monthly? That’s because a lot of dividend investors rely on the cash flow from their portfolio to meet monthly expenses.
In effect, income-seeking readers of this blog are trying to figure out a way to create an alternative stream of income. The best way, of course, is to start a portfolio that pays you for holding it. A bunch of companies that pay you a monthly salary in the form of regular dividends.
Finding these stocks isn’t hard. Dividend policies are publicly mentioned by all listed companies. Some companies adopt a policy of paying dividends every month. A quick google search is all you really need to find REITs, REOCs, ETFs, and stocks that spread the annual dividend out monthly.
However, a monthly salary based on stock dividends implies a certain degree of risk. Dividends are inherently linked to corporate profits and a sudden swing in the wrong direction could jeopardize your neatly crafted income stream.
That’s precisely why sophisticated investors need to move beyond asking what dividends pay monthly and consider ask themselves which stocks can pay monthly forever. Dividends, in our opinion, are infinitely more attractive when they can sustain handsome payouts throughout their lifetime. The only way to find these gems is to dig deep and hunt for quality buried in the balance sheet.
Fortunately, we’ve done the grunt work and figured out the four best monthly dividend stocks on the market today:
Realty Income (NYSE:O)
Probably the oldest and most successful REITs on the market, Realty Income has had a stunning run over the past 48 years. Serious dividend income seekers already know everything about this stock. It’s got a cult following of sorts.
A quick look at the books will clearly convince you this is the ideal income stock. Realty Income has access to the cheapest funds on the market because of its BBB+ credit rating. This stock has been built to offer stable returns every month. The whole business model is the definition of worry-free income from real estate. At the current price ($59.5) and projected AFFO (2017 $3), the P/AFFO ratio is a reasonable 20.
2. Shaw Communications (NYSE:SJR)
Canadian telecom giant Shaw is a Wall Street favorite. Although the company’s brand name has incredible recognition both sides of the northern border, it’s still the smallest of four telecom companies in Canada. Nevertheless, its dividend payout and yield are supported by some fundamentally lucrative economics. Cables, satellite, and media companies tend to have cash-rich business models. Shaw is no different. Over the past year the company has managed to offer a 5% dividend yield with a 58% payout ratio. Yet the PE ratio is a paltry 10.7.
Shaw is one of those rare companies that pays out a monthly dividend. This year’s cash dividend is $0.074 a month, which adds up to $0.89 by April next year. That’s a dividend yield of 4.2% if you buy at the current price of $21.3.
3. STAG Industrial (NYSE:STAG)
STAG has always focused on single tenant properties across the country. This Real estate investment trust has a good track record of discovering and investing in undervalued industrial properties that can be leased out long-term.
It’s a tightly run ship. The company yields over 6% in dividends and pays out nearly 90% of Funds From Operations (FFO). Credit rating agencies rate the company’s bonds BBB, which allows the company to borrow at attractive rates to fund their acquisitions.
The REIT is one of the smallest listed industrial property trusts in the country. Over the course of 2016 the management has been bent on reducing the payout ratio and improving performance metrics. The strategy paid off handsomely as the stock outperformed the S&P 500 by double digits over the past twelve months. When the stock IPOed in 2011, the payout ratio was 91% of AFFO. Now the management believes growing top-line and better debt management will help reduce the ratio to 80% in a few years.
4. EPR Properties (EPR)
Another REIT with a twist. EPR invests in family or retail entertainment venues and offers theater leases. The company has a unique portfolio consisting of ski resorts, retail parks, public charter schools, golf courses, and megaplex theaters. There’s also a handful of investments in vineyards and wineries. Here’s what the portfolio looks like:
The company covers a broad range of different and unique properties which have helped it diversify while keeping the dividend yield high. With a BB+ credit rating and FFO that covers 86% of debt, it’s a safer REIT with a healthy 5.5% dividend yield. Last year net operating income (NOI) was nearly $495 million.
Monthly income is great, but what dividend stocks pay monthly is intrinsically linked to the company’s profitability and business model. As we’ve mentioned before, dividend stock investing isn’t about the most frequent or highest yielding stocks. Instead, it’s about applying the power of compound interest by selecting high-quality stocks that have the ability to sustain and grow dividends forever.
The longer the holding period, the more steady the cash flows from dividends, the better your portfolio’s performance. A steady monthly dividend is substantially more important when you live off the income from your portfolio. Which is why it’s imperative to deeply study the stocks you hope to pick.
The four stocks mentioned here all have one thing in common – they pay a healthy dividend every month. The level of debt, credit rating, funds from operations, and valuations are all reasonable enough to allow an investor to make a bet based on conviction.