While most dividend-paying stocks do so every quarter, some companies make monthly dividend payments. Getting dividend payouts on a monthly schedule may appeal to investors, especially those relying on dividends for a steady income stream.
A dividend is a portion of a company’s earnings that it pays to shareholders on a regular basis. Many investors seek out dividend-paying stocks as a way to generate income.
Note that there are no guarantees that a company that pays dividends will continue to do so.
Key Points
• Monthly dividend stocks can provide steady income, but are less common than quarterly dividends.
• Utility and energy companies may offer consistent dividends due to steady consumer demand and limited competition.
• Dividend ETFs are passive and often track indexes of companies with a history of strong dividend growth.
• REITs pay dividends from income-generating properties and must distribute 90% of income to shareholders.
• Consider not only a dividend stock’s yield, but the long-term stability of the company and its dividend payout ratio.
What Are Monthly Dividend Stocks?
As mentioned above, dividend stocks usually pay out quarterly. However, some companies pay dividends monthly.
Stocks that pay dividends monthly may appeal to investors who want steady monthly income. Additionally, monthly dividend stocks may help investors who reinvest the payments to realize the benefit of compounding returns.
For example, through dividend reinvestment plans (DRIPs) investors can use dividend payouts to buy more shares of stock. Potentially, the more shares they own, the larger their future dividends could be.
How Does Dividend Investing Work?
Most dividends are cash payments made on a per-share basis, as approved by the company’s board of directors. For example, if Company A pays a monthly dividend of 30 cents per share, an investor with 100 shares of stock would receive $30 per month.
Some investors may utilize dividend-paying stocks as part of an income investing strategy. Retirees, for example, may seek investments that deliver a reliable income stream for their retirement. It’s also possible to reinvest the cash from dividend payouts.
A stock dividend is different from a cash dividend. Stock dividends are an increase in the number of shares investors own, reflected as a percentage. If an investor holds 100 shares of Company X, which offers a 3% stock dividend, the investor would have 103 shares after the dividend payout.
Understanding Dividend Yield
Understanding dividends is one part of an investor’s decision when choosing dividend-paying stocks. Another factor is dividend yield, which is the annual dividend amount the company pays shareholders divided by its stock price, and shown as a percentage.
If Company A pays 30 cents per share in dividends per month, that’s $3.60 per year, per share. If the share price is $50, to get the dividend yield you divide the annual dividend amount by the current share price:
$3.60 / $50 = 7.2%
The dividend yield can be useful as it can help an investor to assess the potential total return of a given stock, including possible gains or losses over a year.
But a higher or lower dividend yield isn’t necessarily better or worse, as the yield fluctuates along with the stock price. A stock’s dividend yield could be high because the share price is falling, which can be a sign that a company is struggling. Or, a high dividend yield may indicate that a company is paying out an unsustainably high dividend.
Investors will often compare a stock’s dividend yield to other companies in the same industry to determine whether a yield is attractive. Whether investing online or through a brokerage, it’s important to consider company fundamentals, risk factors, and other metrics when selecting any investment.
Top 10 Monthly Dividend Stocks by Yield
Following are some of the top-paying dividend stocks by yield.
| Company | Ticker | 12-month forward yield |
|---|---|---|
| Orchid Island Capital | ORC | 18.47% |
| ARMOUR Residential REIT, Inc. | ARR | 15.05% |
| AGNC Investment Corp. | AGNC | 14.99% |
| Dynex Capital | DX | 14.23% |
| Ellington Financial | EFC | 12.60% |
| EPR Properties | EPR | 7.67% |
| Gladstone Commercial | GOOD | 6.83% |
| Apple Hospitality REIT | APLE | 6.04% |
| LTC Properties | LTC | 6.03% |
| Realty Income Corp. | O | 5.64% |
Source: Data from Bloomberg, as of Dec. 1, 2024. Universe of stocks derived from Wilshire 5000 index. Companies have >$500M market cap and positive forward EPS.
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Types of Monthly Dividend Stocks
To invest in monthly dividend stocks, investors may want to consider companies in industries that tend to offer monthly dividend payouts. These companies usually have regular cash flow that can sustain consistent dividend payments.
Energy and Utility Companies
In the world of dividend payouts, utility and energy companies (e.g. water, gas, electricity) offer investors a certain consistency and reliability, thanks to the fact that consumer demand for utilities tends to be steady, and thus so is revenue.
Utility companies are considered a type of infrastructure investment, meaning that they provide systems that help society function. As such, these companies tend to be highly durable, offering tangible benefits to consumers and investors.
Also, many energy and utility companies may have little competition in a given region, which can add to the stability of revenue and thereby dividends.
ETFs
Just as an ordinary exchange-traded fund, or ETF, consists of a basket of securities, a dividend-paying ETF includes dividend-paying stocks or other assets. And similar to dividend-paying stocks, investors in dividend ETFs may benefit from regular monthly payouts, depending on the ETF.
Like most types of ETFs, dividend-paying funds are passive, meaning they track an index. In many cases, these ETFs seek to mirror indexes that include companies with a solid track record of dividend growth.
REITs
Real estate investment trusts (REITs) offer investors a way to buy shares in certain types of income-generating properties without the headache of having to manage these properties themselves.
REITs pay out dividends because they receive steady cash flow through rent payments and sometimes profits from the sale of a property. Also, these companies are legally required to pay at least 90% of their income to shareholders through dividends. Some REITs will pay dividends monthly.
Note: REIT payouts are ordinary dividends, i.e. they’re taxed as income, not at the more favorable capital gains rate.
Ways to Evaluate Monthly Dividend Stocks
Investors may want to analyze several criteria to determine the dividend stocks ideal for a wealth-building strategy. Here are a few things investors can consider when looking for the highest dividend stocks:
Dividend Payout Ratio
Investors will also factor in a stock’s dividend payout ratio when making investment decisions. This ratio expresses the percentage of income that a company pays to shareholders.
The dividend payout ratio is calculated by dividing a company’s total dividends paid by its net income.
Investors can also calculate the dividend payout ratio on a per share basis, dividing dividends per share by earnings per share.
The dividend payout ratio can help determine if the dividend payments a company distributes make sense in the context of its earnings. Like dividend yield, a high dividend payout ratio may be good, especially if investors want a company to pay more of its profits to investors. However, an extremely high ratio can be difficult to sustain.
If a stock is of interest, it may help to check out the company’s dividend payout ratios over an extended period and compare it to comparable companies in the same industry.
Company Stability
Investors may also wish to focus on stable, well-run companies with a reputation for paying consistent or rising dividends for years. Dividend aristocrats – companies that have paid and increased their dividends for at least 25 years – and blue chip stocks are examples of relatively stable companies that are attractive to dividend-focused investors.
These companies, however, do not always have the highest dividend yields. Nor do these companies pay monthly dividends; most companies will pay dividends quarterly.
Furthermore, keep in mind a company’s future prospects, not just its past success, when shopping for high-dividend stocks.
Tax Implications
Dividends also have specific tax implications that investors should know.
• A qualified dividend qualifies for the capital gains tax rate, which is typically more favorable than an investor’s marginal tax rate.
• An ordinary dividend is taxed at an individual’s income tax rate, which is typically higher than the capital gains rate.
Investors will receive a Form DIV-1099 when $10 or more in dividend income is paid out during the year. If the dividends are in a tax-advantaged account, an IRA, 401(k), etc., the money will grow tax-free until it’s withdrawn.
Recommended: Ordinary vs Qualified Dividends
Pros and Cons of Investing in Monthly Dividend Stocks
While dividend stocks offer some advantages, they also come with some risks and disadvantages investors must bear in mind.
Pros
• Passive income. As noted above, investing in dividend stocks can provide a source of passive income (although dividends can be cut at any time).
• The ability to reinvest. Dividend stocks allow for reinvestment (using dividend payments to buy more stocks, thus compounding returns). Steady dividends may also allow investors who reinvest the gains to buy stocks at a lower price while the market is down — similar to using a dollar-cost averaging strategy.
Additionally, the stocks of mature companies that pay dividends also may be less vulnerable to market fluctuations than a start-up or growth stock.
• Potential income during a downturn. Another plus for those who choose dividend stocks is that they may receive dividend payments even if the market falls. That can help insulate investors during tough economic times.
Recommended: Pros & Cons of Quarterly vs. Monthly Dividends
Cons
• Dividends are not guaranteed. A company can decide to suspend or cut its dividends at any time. It could be that the company is truly in trouble or that it simply needs the money for a new project or acquisition. This may be especially true for monthly dividend stocks; many REITs that pay monthly dividends suspended or cut dividends during the Covid-19 pandemic.
Either way, if the public sees the dividend cut as a negative sign, the share price could fall. And if that happens, an investor could suffer a double loss.
• Tax inefficiency. First, a corporation must pay tax on its earnings, and then when it distributes dividends to shareholders (which are considered profit-after-tax), the shareholder also must pay tax as an individual. Owing to this tax inefficiency, sometimes referred to as a type of double taxation, some companies decide not to offer dividends and find other ways to pass along profits.
Note that this tax issue doesn’t impact REITs the same way. Entities such as REITs and Master Limited Partnerships (MLPs) pass along most of their profits to investors. In these cases, the company doesn’t owe tax on the profits it passes onto the investor.
• Limited options. Also, choosing the right dividend stock can be tricky. First, monthly dividend stocks aren’t as common as quarterly dividend payouts. And the metrics for analyzing attractive dividend stocks are quite different from those for selecting ordinary stocks.
• Dividends can drop or be cut. Last, it’s important to remember that dividends may fluctuate depending on how a company is performing, or how it chooses to distribute its profits. During a downturn, it’s possible to see lower dividends, or for a company to cut its dividend payout.
• Share price appreciation may be limited. Gains in the share price of some dividend stocks can be limited, as many dividend-paying companies are typically not in a rapid growth phase.
|
Pros and Cons of Monthly Dividend Stocks |
|
|---|---|
| Pros | Cons |
| Provide passive income | Dividend payments are not guaranteed |
| Dividend reinvestment can lead to compound returns | Selecting monthly dividend stocks can be tricky/td> |
| Investors may earn a return even when the stock price goes down | Dividends may be cut or reduced during a downturn |
| Qualified dividends have preferential tax treatment | Some companies view dividends as tax inefficient |
| Share price appreciation may be limited compared to growth stocks | |
Things to Avoid When Investing in Monthly Dividend Stocks
When investing in monthly dividend stocks, there are a few things to avoid:
• Avoid investing in a company that pays a monthly dividend solely to pay a monthly dividend. Many companies pay monthly dividends, but not all are suitable investments. Do your research and only invest in companies that you believe will be successful in the future.
• Avoid investing in a company or industry that you don’t understand. If you don’t understand how a company makes money, you should hesitate to invest in it.
• Avoid investing all of your money in monthly dividend stocks. Diversify your portfolio by investing in other types of stocks, bonds, funds, and other securities.
The Takeaway
Dividend-paying stocks can be desirable. They can add to your income, or offer the potential for reinvestment via dividend reinvestment plans or other strategies you pursue. Monthly dividend stocks offer the potential for steady income, but they are less common than stocks that pay on a quarterly basis.
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FAQ
How do monthly dividend stocks work?
A monthly dividend stock is a stock that pays out dividends every month instead of the more common quarterly basis. This can provide investors with a steadier stream of income, which can be particularly helpful if you rely on dividends for living expenses.
How can you get stocks that pay monthly dividends?
To invest in stocks that pay monthly dividends, you need to research financial websites and publications to find companies that pay dividends monthly. There are not many monthly dividend stocks, especially compared with stocks that pay quarterly dividends.
How can you determine the stocks that pay the highest monthly dividends?
Investors use metrics like the dividend yield and dividend payout ratio to determine the stocks that might be most desirable. However, stocks that pay the highest monthly dividends can change over time, and it’s important to consider other methods of assessing a stock, since a higher dividend isn’t always a sign of company health.
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