While you have probably heard about stocks that pay dividends every quarter, did you know that there are many stocks that pay monthly dividends? When most income investors think about investing for dividends, they naturally look at safe, stable companies like McDonald’s(MCD), Proctor & Gamble(PG), and IBM (IBM), which have a long history of paying quarterly dividends. These types of dividend stocks are usually financially stable, have a lot of liquidity so they are easy to buy and sell, and have enough income and cash reserves to cover their cash dividend payouts to investors every three months.
There are a couple of issues that investors in these type of quarterly dividend stocks should consider. First, the investors’ income stream is exposed to a single company for each stock that they own, and second, depending on the mix of stocks in the investors portfolio, the dividend income can be very lumpy (i.e. most of the dividend money arrives in one month of the quarter, leaving the remaining two months with very little cash coming in.
Stocks that pay monthly dividends are an alternative that can provide regular, consistent, income to investors, and overcome the two main issues highlighted above.
First, stocks with monthly cash dividends are typically traded on regular stock exchanges, and have enough liquidity for investors to easily buy and sell them. Stocks that pay monthly dividends are usually trusts, closed end mutual funds, and other investment vehicles that actually own a portfolio of income producing assets, and distribute cash generated by these assets every month to their investors. This benefits investors because they get the diversification of the underlying portfolio owned by these companies, so investors are not as exposed to single company risk as they would be if they owned a single company that paid a quarterly dividend.
Second, since the income stream from monthly dividend stocks comes three times as often as the cash flow from their quarterly brethren, the income is not going to be as lumpy. This is a significant benefit for investors that need regular income, like retirees that need a passive source of retirement income to meet their monthly needs.
One of the obvious items that investors considering purchasing a stock that pays monthly cash dividends over a company that pays a quarterly dividend is understanding the assets that are held by the monthly dividend company. While this adds an extra research item, it is very easy to find this information in the standard government filings that publicly traded companies have to file with the SEC.
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