Using our data, we have compiled a list of the 10 best monthly dividend stocks with 5+% yield. In fact, there are just over 30 companies that pay monthly dividends. Generally companies pay quarterly dividends, with some paying annual or even biannual dividends. Paying quarterly dividends doesn’t require companies to keep an eye on their cash flow every month, but rather issue dividends alongside their regularly-scheduled financial reports. On the other hand, for companies that pay monthly dividends, such an arrangement is easier, mainly because it is aligned with their business.
Most companies that pay monthly dividends are real estate investment trusts, which conduct their operations (collect rent, mortgage payments, etc.) on a month-by-month basis. Investing in stocks that pay monthly dividends is a simple way to generate cash flow for people who rely on their portfolios for income, such as retirees. In addition, more frequent dividend payouts allows investors to compound their returns more frequently, which results in better returns over the long-run. However, monthly dividend stocks also carry some risks that should not be overlooked.
Since the majority of companies that pay their dividends each month are REITs and MLPs, they also have very high yields, because all or most of their income is paid out as dividends. On the one hand this is a good thing, because monthly dividend payouts suggests that management is shareholder-friendly and is confident that cash flow is strong enough to sustain the dividends.
However, if things go wrong (and the odds of that happening can be high) and the company either skips out on paying monthly dividends or reduces its payments, it suggests trouble ahead and should be interpreted as a major red flag. For example, in recent years, we have witnessed the closure of many malls, which led to the bankruptcy of many mall operator REITs. Currently, as the Fed is increasing interest rates, REITs will face higher borrowing costs, which can also lead to lower profits and smaller dividends.
In some cases though, a sell-off prompted by changes in a company’s dividend-paying practices can create a good entry point, especially since the company’s issues are temporary. The recent drop in oil prices led to the sell-off of most energy companies, including many MLPs. This led to higher dividend yields for MLPs. However, many MLPs continued to pay dividends, despite registering losses. This creates a good opportunity for investors, because MLPs are likely to either find funds to cover their payouts until the oil market gets stronger, or will restructure their operations until they become profitable again, which could increase the value of the stock itself.
Now, even though there aren’t many companies that pay monthly dividends, we can narrow down the search further and see what the most popular stocks among hedge funds are. This is where our data is useful. We track over 670 hedge funds and analyze their quarterly filings to identify the stocks that they are collectively the most bullish on. We then use the data to identify stocks that are included in our investment strategy, which we share with our premium subscribers. Our strategy has returned over 45% since February 2016.
Without any further ado, let’s take a closer look at the 10 best monthly dividend stocks with 5+% yield.