[Editor’s note: This story was originally published in March 2017. It has since been updated and republished to reflect the latest dividend yields and stock prices.]
I like making money in the stock market, but I love dividends. You see, the problem with capital gains is that to actually enjoy them, you have to sell your shares. The beauty of dividend stocks is that you get to enjoy the fruits of your investment without having to actually sell anything. Think of it as milking a cow rather than killing it for meat. Which sounds like the better long-term plan to you?
Even most dividend stocks are imperfect, as dividends are usually paid quarterly. This problem with this is that most of our expenses tend to be monthly, so when you depend on dividends to pay your bills, there is always something of a disconnect between your income and your expenses. This can make budgeting something of a challenge.
Thankfully, monthly dividend stocks do exist, and there are actually quite a few of them out there.
Today, we’re going to look at 10 solid monthly dividend stocks to buy. Many of these names are popular among income investors, but others will almost definitely be new to you. Importantly, all have a long history of taking care of their shareholders with consistent monthly dividend checks.
Dividend Stocks to Buy: Realty Income (O)
Dividend Yield: 4.2%
Type: Commercial REIT
Realty Income Corp (NYSE:O) styles itself as “the Monthly Dividend Company,” and frankly, this conservative retail real estate investment trust (REIT) deserves the title of king of the monthly dividend stocks. Realty Income has paid its investors like clockwork for 559 consecutive months and raised its dividend for 77 consecutive quarters. And O has given no indication of slowing down.
Realty Income has raised its dividend at a 4.7% annual clip for over three decades running.
A stock is always going to be considered more risky than a bond, but Realty Income is about as close to a bond as you can realistically get in the stock market. Its cash flows are backed by long-term leases to high-quality tenants. Its properties are generally high-traffic retail sites that are mostly recession proof and “Amazon.com proof.” Think of your local convenience store or pharmacy. Chances are decent that Realty Income owns it.
In the interests of full disclosure, I own some shares of Realty Income that I bought nearly a decade ago and that I never intend to sell. I’ve been reinvesting my dividends, slowly building up my share count. One of these days, I’ll flip the switch and start taking those dividends in cash. But for now, I’m enjoying watching the number of shares that I own increase with every passing month.
Dividend Stocks to Buy: Stag Industrial (STAG)
Dividend Yield: 5.4%
Type: Industrial REIT
Stag Industrial Inc (NYSE:STAG) is a small-cap REIT that I have had in my portfolio for several years, but it’s a REIT that most investors have never heard of. “STAG” stands for “single tenant acquisition group,” and that pretty well sums up its business model. STAG acquires single-tenant properties in the industrial and light manufacturing space. A warehouse or small factory would be a typical property for the REIT.
STAG has enjoyed explosive growth since it went public in 2011, expanding its portfolio 369% to 314 properties in 37 states. And unlike a glitzy hotel or office building, STAG’s gritty industrial properties don’t require a lot in terms of maintenance and upkeep.
At current prices, STAG yields about 5.4%, which is a respectable yield for a REIT these days. And since its 2011 IPO, STAG has grown that dividend by 35% — not a bad run for a boring industrial portfolio.
If you don’t need the dividend for current living expenses, instruct your broker to reinvest the dividends. A few years from now, you’ll have a much larger share count … and a much larger monthly dividend.
Dividend Stocks to Buy: LTC Properties (LTC)
Dividend Yield: 5.1%
Type: Healthcare REIT
Among monthly dividend stocks, few have better demographic prospects than health and senior-living REIT LTC Properties Inc (NYSE:LTC).
In case you couldn’t immediately figure out what LTC does, take a good look at its stock ticker symbol. “LTC” is short for “long-term care,” and that’s exactly what its tenants provide. Substantially the entire 200-plus-property portfolio is invested in skilled nursing and assisted-living facilities spanning 30 states.
Health and senior living aren’t exactly the most exciting markets, but they have stable and growing demand due to the aging of the baby boomers. Over 10,000 boomers turn 65 every single day, and this generation will need more and more health services with each passing day. So, demographic trends are definitely on LTC’s side.
LTC sports a dividend yield of 5.07%. And while that’s not mouthwateringly high, it’s not bad considering the low yields available in the bond market. And LTC’s dividend has grown every year since 2010. Over the past five years, LTC has raised its dividend at 6% annual clip.
LTC is far from exciting — in fact, it’s pretty boring. But boring is just fine in a portfolio of monthly dividend stocks.
Dividend Stocks to Buy: EPR Properties (EPR)
Dividend Yield: 6.1%
Type: Commercial REIT
This list is getting a little heavy in REITs, but I’d like to add one more to our list of monthly dividend stocks, alternative retail REIT EPR Properties (NYSE:EPR). As with LTC and STAG, EPR’s name is an acronym that stands for “Entertainment Properties.”
EPR’s specializes in quirky, nontraditional assets, including properties like golf driving ranges, movie theaters, water parks, ski parks and private schools. But it is this quirkiness is that makes EPR so attractive.
Think about it. You have to have specialized knowledge to successfully invest in these sorts of properties, and very few managers have it. This gives EPR a competitive advantage and allows it to grab higher yields than it would normally find in more traditional properties. But at the same time, the strangeness of the portfolio also tends to be a turn-off to a lot of money managers accustomed to analyzing apartment or office REITs. This has a way of depressing the share price and giving us an attractive entry point.
Today, EPR yields 6.11% in dividends, and it has raised its dividend at a 7% rate. That’s pretty good if I do say so myself.
In addition to its high yield, EPR has value as a portfolio diversifier. The prices of driving ranges or movie theaters are not tightly correlated to those of apartments or office buildings.
Dividend Stocks to Buy: Vereit Series F Preferred Stock (VER-PF)
Dividend Yield: 6.7%
Type: REIT Preferred Stock
I’m going to go a slightly different direction here. I’m going to recommend another REIT … sort of.
In addition to their regular common stock, REITs often fund their expansion projects with debt and with preferred stock. If you are unfamiliar with the asset class, preferred stock is something of a hybrid between a common stock and a bond.
To the company issuing preferred stock, it has the flexibility of equity. If you miss a dividend payment, your investors might get angry, but there isn’t much they can do about it. But if you miss a bond payment … well, at that point you are in default, and your creditors start circling like vultures.
But while preferreds look like equity to the issuer, they look a lot more like bonds to the investors. Investors receive a fixed dividend and rarely get much in the way of capital gains.
This brings me to the Vereit Series F Preferred Stock (NYSE:VER-PF). Vereit Inc (NYSE:VER) is a triple-net retail REIT that’s fairly similar to Realty Income. But I’m not recommending the common stock today, but rather the preferred. VEREIT’s preferreds pay an attractive 6.7% yield, paid monthly.
You’re not likely to get much in the way of capital gains here, but you’re definitely getting a consistent monthly income stream. And if you’re in or near retirement, that’s exactly what you need.
Dividend Stocks to Buy: Main Street Capital (MAIN)
Dividend Yield: 6.1%
Type: Business Development Company
You’ve probably had your fill of REITs by now, so let’s jump into a different asset class that includes monthly dividend stocks: business development companies (BDCs).
The best thing that ever happened to BDCs was the collapse of the banking sector in 2008. This created a vacuum that BDCs were more than happy to fill. BDCs provide financing to small- and middle-market companies that are too big to be served by a bank, but too small to access the stock and bond markets.
BDCs are a lot like REITs in that both have special tax advantages. Neither BDCs nor REITs are required to pay federal income taxes so long as they pay out the bulk of their earnings as dividends. So, both sectors pay above-market dividends, making both very attractive to retired investors.
With that as background, let’s take a look at Main Street Capital Corporation (NYSE:MAIN), one of the best-run BDCs in this space. MAIN makes both equity and debt investments in the companies in its portfolio, and most of its investments are in the fast-growing Sunbelt region of the country.
At current prices, MAIN pays a regular dividend of about 6.12%. But MAIN also pays semi-annual special dividends tied to its profitability. And if you include the last two special dividends, MAIN’s yield becomes an impressive 7.6%.
Dividend Stocks to Buy: Prospect Capital (PSEC)
Dividend Yield: 10.3%
Type: Business Development Company
Let’s throw in one more monthly dividend-paying BDC, Prospect Capital Corporation (NASDAQ:PSEC). Rather than pay a lower regular dividend that is topped up with periodic special dividends, Prospect pays out substantially all of its earnings in its regular monthly dividend. This has gotten the company into trouble in the past, as the company has had to cut its dividend. So while Prospect’s 10.31% yield is enticing, this is a slightly riskier BDC than Main Street.
All the same, PSEC is an interesting buy at today’s prices. It trades at an 8% discount to book value, which gives us a modest margin of safety. I’m also impressed by the fact that management has serious skin in the game. PSEC’s top executives have been aggressively buying the stock over the past two years, scooping up over $100 million in PSEC stock on the open market.
High levels of insider ownership or buying by no means guarantee that a stock will perform well. But it definitely incentivizes management to work in the best interests of the shareholders, as a large piece of their net worth depends on their success.
Dividend Stocks to Buy: Eaton Vance Limited Duration Income Fund (EVV)
Dividend Yield: 6.6%
Type: Closed-End Fund
I’m not nearly as concerned about rising bond yields as a lot of investors are. I see inflation staying relatively muted, and it’s hard for me to see inflation really roaring to life while the Federal Reserve is raising rates. All else being equal, low inflation should mean low bond yields for a lot longer.
But let’s say I’m wrong. It’s never a bad idea to hedge your bets with some exposure to floating-rate securities. And that’s where the Eaton Vance Ltd Duration Income Fund (NYSEMKT:EVV) comes into play.
EVV is a closed-end fund that owns a diverse basket of income investments with only modest interest rate risk. 37% of its portfolio is invested in bank loans, which generally have floating rates. So if rates rise, so should the interest income that EVV receives from its bank loan investments. The rest of the portfolio is invested primarily in short-duration bonds and asset-backed securities.
At current prices, EVV yields 6.55% and trades at an 8.2% discount to net asset value. You’re not likely to get rich quick in EVV, but if you’re looking for a reliable monthly dividend with the potential for modest capital gains, then this is a solid choice.
Dividend Stocks to Buy: Cohen & Steers REIT and Preferred Income Fund, Inc. (RNP)
Dividend Yield: 8%
Type: Closed-End Fund
I’ve had a lot to say about REITs in this article, which makes sense. REITs are some of the most consistent income producers out there, and the REIT sector is fertile ground for monthly dividend stocks. Well, I’m going to give you a slight variation on a theme here with the Cohen & Steers REIT and Preferred Income Fund (NYSE:RNP), a closed-end fund that trades in REITs and preferred stock.
RNP’s portfolio is currently split about 50/50 between REITs and preferred stock. The preferred stock allocation gives it a little more interest rate risk than the other stocks in this list, but I’m OK with that. We’re more than compensated for that risk with the large 8.03% dividend.
Like many closed-end funds, RNP often trades at a discount to book value, and today that discount is a rather wide 12.3%. That means we’re effectively getting a dollar’s worth of high-quality assets for 88 cents. And that’s not half bad!
Dividend Stocks to Buy: UBS ETRACS Monthly Pay 2x Leveraged Mortgage REIT ETN (MORL)
Dividend Yield: 22.5%
Type: Mortgage REIT ETN
I’ve spent a good part of this article writing about REITs. Well, for my last recommendation, I’m going to recommend their close cousin, mortgage REITs.
Whereas equity REITs own real property like buildings or land, mortgage REITs own mortgages and mortgage derivatives. In a nutshell, mortgage REITs borrow money at short-term rates and then invest it in higher-yielding mortgage securities, making money on the spread.
For the past several years, most of the mortgage REIT sector has been trading at a discount to book value. That’s unusual for this sector, however, as it tends to trade at a pretty substantial premium. Investors are generally willing to pay up for the high yields.
I’m going to recommend you take advantage of that pricing today by buying the UBS ETRACS Monthly Pay 2xLeveraged Mortgage REIT ETN (NYSEARCA:MORL), a leveraged exchange-traded note that gives you double the price movement and double the yield of the mortgage REIT sector. MORL pays its dividend monthly, and it yields nearly 23%!
As of this writing, Charles Sizemore owned all of the aforementioned securities.