It’s amazing having your portfolio pay you monthly. When the dividends from your portfolio companies come through every month and match up perfectly with your bills, it’s a harmonious balance of cash flows that most investors can envy.
Income seeking investors know that they will have to create a monthly dividend portfolio if they rely on their investments to meet living expenses. For people who live off dividends, the yield isn’t everything. Cash flow timing is just as important. Aligning the dividends with monthly payment schedules is the holy-grail of financial independence.
Yet, most investors wonder how to find monthly dividend stocks. The most common payment schedule is quarterly or annually. Some companies prefer paying only a few times a year rather than every month. That makes it difficult for investors to find high-quality stocks. Most of these income seeking investors know they can expect their gas or electricity bill at the end of each month and wonder how to find monthly dividend stocks that are actually worth holding.
We’ve already discussed the top 35 monthly dividend stocks that you can consider, but not all of them are cheap or worth buying at the moment. Those 35 stocks may not fit everyone’s portfolio or investment style. The list also leaves out some high quality companies with a lot of potential that are much better investments at the moment.
Apple, for example, is a wonderful value stock with a lot of potential. It’s also the largest dividend paying company on the planet. But investors are missing out on this fantastic stock simply because it doesn’t pay those lucrative dividends every month. To avoid this, serious investors willing to make the effort should stop asking themselves how to find monthly dividend stocks. Instead, they should ask themselves how to create a portfolio that pays monthly.
Here’s a case study of a sample portfolio that an investor can use to generate monthly dividends from high quality investments.
A Bit Of Planning
To create the perfect dividend portfolio, you need a little bit of planning and a lot of research. The trick is to align high quality stocks, with the right value, and an appropriate schedule. Basically, you look for high yield stocks with great prospects. Value them to see if they’re worth buying at the moment. And consider how their payment schedule fits in with the rest of the portfolio.
A good example is the SPDR Dow Jones Industrial Average ETF (DIA). This ETF is a basket of stocks that pay their dividends on different months, but the ETF pays out every month of the year.
So, a few stocks may pay in the first month of each quarter while others pay dividends once a year, but the combined portfolio has a monthly schedule. Of course, creating such a portfolio takes a lot of work. You need to note all the different payment schedule and try to align them. Make sure the list is updated regularly and there are no gaps left. Another downside is the volatility of this method. Because the dividend yields are different, you may end up with a lumpy payment schedule. Some months will have higher dividends than others.
If that’s okay, you can try to create a monthly portfolio from scratch and try to make the payments as smooth as possible.
The upside to this method is diversification and better quality. You don’t need to leave out attractive investments and high quality blue chips simply because they don’t pay a dividend every month. You can also stop worrying about how to find monthly dividend stocks and widen your investment universe. More stocks to choose from should lead to better investment decisions.
You can also mix and match the portfolio stocks to diversify your holdings. Different industries and different financial instruments can help you create a strong and stable dividend portfolio. This helps you lower risk and maximise returns.
Combination: ETFs, REITs, BDUs, and Stocks
The best way to start creating a monthly income dividend portfolio is to mix different types of investments with varying schedules. A combination of bonds, income ETFs, BDCs, REITs and individual stocks should help you create the perfect portfolio. By diversifying across industries and instruments, you can customize the portfolio and make it fit your investment objectives better.
A good place to start is with a monthly dividend ETF. ETFs are baskets of stocks and some of them are designed to pay investors monthly. iShares Core Dividend Growth ETF (NYSEARCA:DGRO), iShares Core High Dividend ETF (NYSEARCA:HDV), Vanguard Dividend Appreciation ETF (NYSEARCA:VIG), and Vanguard High Dividend Yield ETF (NYSEARCA:VYM) are just some examples.
Then there are REITs or BDCs, which pay out dividends monthly. Realty Income, the monthly dividend company, is a great example of a high quality dividend investment. You can use these instruments to create a baseline. Since these investment will pay every month, you know there’s no gap in your annual schedule. You will be paid at least a small sum every month. You can augment this with individual stocks and high -yield investments later to raise the overall yield from your net assets.
Here’s what a sample portfolio of high quality stocks with different schedules looks like:
|Symbol||Company||Sector||Current Yield (As of 7/20/17)||Month Paid|
|(CSCO)||Cisco Systems||Information Technology||3.64%||1|
|(IBM)||International Business Machines||Information Technology||4.06%||3|
|(JNJ)||Johnson & Johnson||Health Care||2.46%||3|
|(PG)||Proctor & Gamble||Consumer Staples||3.11%||2|
These are all high quality stocks picked from a range of different industries. Within the list, there are are 5 paying dividends in the 1st and 2nd months of each quarter, and 10 in the 3rd month. Combining these with a baseline of monthly REITs or ETFs could boost the overall yield from the portfolio.
Some of them offer exceptionally high dividend yields. Since the payment schedule varies, you can fit them into your portfolio and expect a steady stream of monthly payments. There’s no need to wonder how to find monthly dividend stocks because your portfolio ends up paying monthly anyway.
A wide variety of different industries can help you diversify the portfolio. This secures the wealth and lowers the risk of investment considerably.
Over time, the dividend yield, payout ratio, and business prospects of each of these stocks will change. You need to be able to value each stock individually and consider when you can buy or sell them. Pay close attention to their performance and financial status. Over time, the list will change and your portfolio will evolve. Some stocks may be dropped off and others will replace them.
The focus should be on 6 key factors:
- The overall dividend yield of the portfolio
- The level of overall diversification
- The financial strength of each company
- The future prospects for each company and industry
- The dividend payment schedule
- The intrinsic value of the stock
Creating a portfolio that pays monthly dividends is the holy grail for any investor who lives off the income from investments. However, most investors wonder how to find monthly dividend stocks. Focusing exclusively on stocks that pay a monthly dividend is a tried and tested strategy. However, it limits your overall yield and potential for diversification.
Instead, create a portfolio with a baseline of ETFs or REITs that are guaranteed to pay a monthly dividend. Then, augment the portfolio with individual stocks that offer a better yield or better growth prospects. This will help you create a stronger portfolio that still sends out a paycheck every month.
While creating this portfolio, focus on the yield, diversification, and safety of each stock you consider. Add the stocks or ETFs only if you see evidence that they augment the overall portfolio and help you earn more. Monitor them closely and keep shifting the portfolio based on changing circumstances.
Although this approach is a lot more hands-on, it will help you create a better dividend portfolio.