What Kinds of Stocks Pay Monthly Dividends?

Dividends represent a portion of a company’s profits distributed to its shareholders. While many companies pay these out quarterly, some offer monthly dividends, providing a more frequent income stream. This regular payment appeals to investors seeking consistent cash flow for living expenses or frequent reinvestment.

Common Categories of Monthly Dividend Stocks

Companies paying monthly dividends often generate consistent income or are investment vehicles designed to pass through earnings. Real Estate Investment Trusts (REITs) are a prime example, owning, operating, or financing income-producing real estate across sectors like apartments, shopping centers, or data centers. REITs are legally required to distribute at least 90% of their taxable income to shareholders, which often facilitates monthly payouts.

Business Development Companies (BDCs) also offer monthly distributions. These companies invest in small and mid-sized businesses, through debt and equity, providing capital for growth or turnaround. Like REITs, BDCs operate as Regulated Investment Companies (RICs) and must distribute at least 90% of their taxable income to shareholders to avoid corporate-level taxation.

Closed-End Funds (CEFs) are another source of monthly dividends. These investment funds trade on exchanges similar to stocks and often have managed distribution policies that aim to provide predictable cash flow to shareholders monthly or quarterly. CEFs can hold various asset classes, including bonds, stocks, or a combination, and their distributions may come from interest, dividends, capital gains, or even return of capital.

While individual stocks rarely pay monthly, some Exchange-Traded Funds (ETFs) and mutual funds are specifically structured to aggregate income from underlying investments, including REITs, BDCs, and other dividend-paying securities, and distribute this income to their shareholders monthly. Preferred stocks, a hybrid security with features of both equity and debt, can also offer monthly dividends. These pay a fixed dividend rate and have priority over common stockholders in receiving payments.

How to Identify Monthly Dividend Stocks

Monthly dividend stocks can be identified through various tools and resources. Online financial websites and stock screeners are effective starting points for this search. Many popular platforms offer advanced screening capabilities where users can filter for specific criteria, including “dividend frequency: monthly.”

Brokerage firms provide their clients with research tools and curated lists of dividend-paying stocks or funds. These resources can help investors narrow down options based on their preferences and investment goals. Specialized dividend websites also exist, offering detailed tracking of payment schedules and lists of monthly dividend companies.

Another method involves checking the investor relations section of a company’s corporate website. Publicly traded companies disclose their dividend policy, including payment frequency and history, in this dedicated section. This approach provides official company information on dividend distributions.

Key Considerations for Monthly Dividends

When evaluating monthly dividend investments, focusing solely on high dividend yield can be misleading; consider dividend sustainability and the company’s overall financial health. Dividend yield represents the income received relative to the share price, while total return includes both dividends and any appreciation or depreciation in the stock’s price. A stock with a high dividend yield but a declining share price may still result in a negative total return.

Examining a company’s dividend stability and history is important. A consistent track record of paying and increasing dividends suggests financial strength and commitment to shareholders. Conversely, a history of dividend cuts or inconsistent payments can signal underlying financial issues. Investors should review financial indicators such as revenue, earnings, free cash flow, and debt levels to ensure the company can sustain its payouts. For example, a dividend payout ratio between 40% and 60% is often healthy, balancing profit distribution and earnings retention for growth.

Dividends are considered taxable income and their tax treatment can vary. Qualified dividends receive favorable tax treatment, taxed at lower long-term capital gains rates (0%, 15%, or 20% depending on income). Non-qualified or ordinary dividends are taxed at higher ordinary income tax rates, up to 37%. Understanding this distinction is important for assessing after-tax returns. Diversifying investments across various monthly dividend stocks or funds mitigates risk and avoids overconcentration in any single asset or sector.