What Types of Stocks Pay Monthly Dividends?

Dividends represent a portion of a company’s profits or earnings distributed to its shareholders. These payments are typically made on a fixed schedule. While many companies issue these distributions quarterly or annually, some provide them on a monthly basis. Monthly dividends can offer investors a more consistent and predictable income stream.

Understanding Monthly Dividend Stocks

Monthly dividend stocks are shares of companies that pay out a portion of their profits to shareholders every month, contrasting with the more common quarterly or annual payments. This frequent distribution means investors receive income 12 times a year. Companies typically pay these dividends from their earnings, interest income, or capital gains.

The appeal of monthly dividends lies in their ability to provide a steady cash flow for investors seeking regular income or to accelerate compounding through frequent reinvestment. While the total annual dividend yield may be similar to quarterly payers, the increased frequency can align better with personal budgeting needs. Not all companies can sustain monthly payouts, requiring consistent earnings and strong financial health.

Investment Types Known for Monthly Dividends

Several investment categories are associated with monthly dividend payments. Real Estate Investment Trusts (REITs) are a prominent example. They own or finance income-producing real estate and must distribute at least 90% of their taxable income to shareholders annually. This often leads REITs to pay monthly dividends, derived from rents and other property income. Dividends from REITs are generally taxed as ordinary income rather than qualified dividends, which can have different tax implications.

Business Development Companies (BDCs) also commonly offer monthly dividends. BDCs invest in small and mid-sized private companies, passing through most of their income to shareholders. Closed-End Funds (CEFs) are publicly traded investment companies that often pay monthly distributions, typically from diversified portfolios of stocks and bonds, or through strategies like covered call writing. Certain Exchange-Traded Funds (ETFs) are designed to provide monthly income, often employing strategies like selling covered calls to generate income for distribution.

Finding Monthly Dividend Stocks

Investors can identify stocks and funds that pay monthly dividends using various methods. Online stock screeners are a widely used resource, allowing users to filter investments based on dividend frequency. These screeners are available on many financial news websites and brokerage platforms.

When using a screener, investors can specify “monthly” as the dividend payment frequency. Additional criteria like market capitalization, dividend yield, and payout ratio can be applied to narrow down results.

Evaluating Monthly Dividend Stocks

Assessing the stability and reliability of monthly dividend payments involves reviewing several key financial metrics. The dividend yield indicates the annual dividend per share relative to the stock’s current price, providing a percentage return on investment. While a high yield can be appealing, consider if it is sustainable or if it results from a declining stock price.

The payout ratio, calculated as dividends per share divided by earnings per share, reveals the proportion of a company’s earnings distributed as dividends. A payout ratio generally below 70% for most companies suggests a healthy balance between rewarding shareholders and retaining earnings, though REITs often have higher payout ratios due to their distribution requirements. Examining a company’s dividend history for consistency and growth provides insight into management’s commitment to shareholder returns. Analyzing the underlying financial health, including cash flow generation and debt levels, is important to determine its ability to maintain future dividend payments.