I’m a big fan of monthly dividend stocks. Modern life is built around the idea of the monthly billing cycle: the mortgage payment, car payment, health insurance premiums, electricity, water and phone bills. Even Netflix, Inc. (NASDAQ:NFLX)! Virtually every regular expense we have runs on a monthly cycle, so why shouldn’t dividend stocks?
Bonds usually pay their coupon payments semiannually, and stocks generally pay their dividends quarterly. For retired investors living off of their portfolio income, this creates a mismatch. Expenses are regular, yet income is lumpy.
So, all else equal, monthly dividend stocks are a dream come true for investors. Now, some obvious, common-sense caveats apply here. You should never buy a stock because its dividend is paid monthly. The health of the underlying business, growth prospects, the quality of management and the stock’s valuation are all vastly more important than its dividend calendar.
But if I were hypothetically looking at two otherwise identical stocks, I’d clearly choose the stock with a monthly payout over the one with a quarterly payout. Some might argue that a monthly payout is nothing more than a cynical attention grabber designed to appeal to yield-starved retail investors. I disagree.
When I see a monthly payout, that tells me that management is making a real effort to give its investors what they want. So with that, let’s jump into our list of seven quality monthly dividend stocks.
Dividend Stocks: Realty Income (O)
Dividend Yield: 4.6%
I can’t make a list of monthly dividend stocks without including “The Monthly Dividend Company” itself, Realty Income Corp (NYSE:O). Realty Income is easily one of the most uninteresting companies in the S&P 500, and I’m perfectly fine with that. When it comes to investing, boring is beautiful. Realty Income owns close to 5,000 properties leased to 250 scattered across 49 states and Puerto Rico. And all of its properties are leased under triple-net arrangements, meaning the tenant is responsible for all maintenance, taxes and insurance.
Once a tenant is moved in, Realty Income’s only responsibility is to cash the rent checks, which it then recycles into a steady monthly dividend. And about that …
As I write this, Realty Income has paid 562 consecutive monthly dividends and has raised its payout for 78 consecutive quarters. And at current prices, it yields a respectable 4.6%.
I own some shares of Realty Income that I expect will pay a good chunk of my retirement expenses a good 20-25 years from now when I actually retire. For now, I’m reinvesting the monthly dividends and watching my share count grow.
Dividend Stocks: Global Net Lease (GNL)
Dividend Yield: 9.5%
Along the same lines, we have Global Net Lease Inc (NYSE:GNL). GNL is well diversified, with about 59% of its portfolio is invested in office buildings, with another 18%, 13% and 10% invested in industrial, distribution and retail properties, respectively.
Global Net Lease’s tenants are also well diversified. Financial services — the largest tenant industry — make up only 13% of the total. But perhaps the biggest selling point here is the country diversity. Global Net Lease has about half of its portfolio in American properties with the rest in Europe. The U.K. is largest European allocation, at 22% of the portfolio, but Germany, France and the Netherlands all are well represented.
Global net lease pays a 18 cent monthly dividend, which works out to a yield of 9.5% at current prices.
I should note that Global Net Lease’s dividend should be considered riskier than that of, say, Realty Income, as Global Net Lease has a very high dividend payout ratio (96% of adjusted funds from operations). But if you don’t mind a little risk, GNL is worth a look.
Dividend Stocks: EPR Properties (EPR)
Dividend Yield: 5.5%
One of my very favorite monthly dividend stocks is EPR Properties (NYSE:EPR). EPR is a quirky REIT with properties mainly focusing on the entertainment industry, such as movie theaters, golf courses and ski resorts. Though more than a fifth of EPR’s portfolio is in public and private schools and early childhood education centers.
These non-traditional property types are generally shunned by most investors, as they lack the specialized expertise to manage them properly. The nightmare of every landlord would be to get stuck holding the bag on a vacated specialty property that is hard to repurpose. But this is EPR’s niche, and they’ve been doing it for nearly 20 years.
At current prices, EPR yields an attractive 5.5%. I’d be comfortable buying EPR at these levels. Though if EPR had a correction that sent its yield over 6%, I’d back up the proverbial truck and aggressively add shares. I consider EPR a solid long-term investment that is largely immune from the rise of online shopping.
Dividend Stocks: Gladstone Commercial (GOOD)
Dividend Yield: 6.9%
A large percentage of monthly dividend stocks are REITs, which makes sense. Real estate is generally focused on income generation, and REITs are required to pay out 90% of their taxable income as dividends in order to maintain their tax status. So, let’s look at one more monthly-paying REIT Gladstone Commercial Corporation (NASDAQ:GOOD).
Gladstone specializes in office and industrial properties and is part of a family of related companies collectively known as “the Gladstone Companies,” controlled by founder David Gladstone. Its publicly-traded sister companies include Gladstone Capital Corporation (NASDAQ:GLAD), Gladstone Investment Corporation (NASDAQ:GAIN) and Gladstone Land Corporation (NASDAQ:LAND), all of which are also monthly dividend stocks.
GOOD sports an attractive current yield of roughly 7%, but this is also a smaller REIT with a market cap of only $500 million and a very limited trading history, so expect it to be a little more volatile than some of its larger peers.
Dividend Stocks: AGNC Investment (AGNC)
Dividend Yield: 9.8%
I’ll give you one last REIT before moving on, mortgage REIT AGNC Investment Corp (NASDAQ:AGNC). AGNC is a lot different than the other REITs in this list. Rather than own physical properties, AGNC invests in mortgage bonds and collateralized mortgage obligations.
Importantly, all of AGNC’s investments are guaranteed by the U.S. government or by a government-sponsored entity, so credit risk is essentially nil.
But while credit risk isn’t an issue for AGNC, this REIT is certainly not risk free. Mortgage REITs borrow at cheap short-term rates, using leverage to boost their returns. This can be a problem when the Federal Reserve is raising rates, as they are today, as it narrows the spread between the REIT’s borrowing rate and its lending rate.
The ideal time to buy a mortgage rate is when longer-term rates are relatively high and the Fed is just starting to lower rates. In that kind of market, mortgage REITs practically have a license to print money.
Well, that’s not today. So you might want to put AGNC on your watch list rather than buy it today. But then again, AGNC’s 10.1% monthly dividend is pretty hard to pass up.
Dividend Stocks: Student Transportation (STB)
Dividend Yield: 7.5%
Moving away from REITs, let’s now take a look at school bus operator Student Transportation Inc (NYSE:STB). It’s pretty easy to understand Student Transportation’s business model. City and county governments are perpetually strapped for cash, and outsourcing school bus services is a convenient way to save money.
Student Transportation manages a fleet of 13,500 school buses scattered across the United States and Canada that transport over a million students per day. And there is still plenty of room for growth, as roughly two-thirds of all school buses are owned and operated by public school districts.
At current prices, Student Transportation yields about 7.5%, which is a very solid yield. Though you shouldn’t expect a lot in the way of dividend growth.
STB’s dividend has been flat at today’s levels for quite a while, and the company pays out more than it earns as dividends.
Dividend Stocks: Main Street Capital (MAIN)
Dividend Yield: 5.8%
And finally, I’d recommend you give business development company (BDC) Main Street Capital Corporation (NYSE:MAIN) a good look.
BDCs are a little like REITs in that they avoid corporate income taxes so long as they distribute 90% of their profits as dividends. As a result, BDCs tend to retain very little capital, which generally limits their share price appreciation. But if you’re buying them for the high current dividends, that’s perfectly fine.
MAIN has a very sensible dividend policy. It pays a relatively modest monthly dividend, but then tops it up with larger special dividends once or twice per year as profitability allows. This gives MAIN quite a bit of flexibility. By keeping the regular dividend conservative and manageable, MAIN will likely never be in a position where it overextends itself and is then forced to cut its dividend. But at the same time, the special dividends still allow MAIN to reward its shareholders quite generously.
Based on its monthly dividend, MAIN yields a decent 5.8%. But including the previous two special dividends, that yield jumps to over 7%. Not too shabby. And unlike some of the other stocks on this list, MAIN has a history of regularly raising its dividend.
Charles Lewis Sizemore, CFA is the principal of Sizemore Capital Management. As of this writing, he was long O, EPR and MAIN.