Even the best dividend stocks tend to have one major disconnect: Most of us pay our bills on a monthly cycle, yet most stocks that pay dividends do so only once per quarter. This can make budgeting a headache and adds an extra level of planning.
Sure, a diversified portfolio of the best dividend stocks will have payment dates spread across the calendar, but your income stream is still generally going to be lumpy and uneven. That’s why monthly dividend stocks would be vastly preferable for most investors.
And aside from budgeting concerns, there is another major reason why monthly dividend stocks are preferable: compounding. If you reinvest your dividends in additional shares instead of using the income for current needs, you compound your wealth significantly faster, as the number of shares paying you a dividend rises every single month.
On a $100,000 portfolio, this might amount to a couple hundred bucks over the course of a single year. But remember, compounding is not linear; it’s exponential. Over the span of an investing lifetime, that “couple hundred bucks” from monthly dividend stocks can turn into tens of thousands of dollars. (If you want to see how the math works, check out Accounting Coach.)
Several income-focused mutual funds and closed-end funds do, in fact, pay monthly. But most are concentrated in low-yielding bonds, and if you’re like me, you prefer to hand pick the best dividend stocks for both income growth and capital appreciation.
The good news: There are actually quite a few monthly dividend stocks to choose from. Let’s take a look at some of my favorites.