This guide will briefly delve into the terminology and basics of dividend stocks and then present you with our pick for the five most lucrative monthly dividend stocks – their fundamentals, growth, and possible limitations to consider.
What are dividend stocks?
Dividend stocks are companies that make regular distributions to their shareholders. These companies are usually well-established, typically publicly-traded, with stable earnings and a long track record of paying out dividends to shareholders. The distributions are called dividends and are generally in the form of cash payments or as additional stock. Dividends are commonly paid on a monthly, quarterly, or yearly basis.
Dividend stocks can be valuable sources of income and present a lucrative method to increase your wealth over the long term, in addition to being a fantastic source of passive income. Dividend investing is a strategy of buying shares that pay dividends to receive a regular income stream from your investments on top of any growth in your portfolio as its stocks or other holdings gain value (share price appreciation).
Important
Related reads:
What is Value Investing?
What is Momentum Investing?
17 Common Investing Mistakes to Avoid
How to Buy and Sell Stocks?
10 Best Stock Trading Books for Beginners
15 Top-Rated Investment Books of All Time
Assessing a dividend stock
Finding high-quality dividend-paying companies can be a challenge. Therefore, if you plan to invest in dividend stocks, it is essential to determine how sustainable, safe, and competitive the company is. So, here are some key metrics for evaluating a company’s dividend payout:
- Long-term profitability: Pick companies that have demonstrated consistent growth on an annual basis. Specifically, companies whose long-term earnings growth expectations range between 5% and 15%;
- Healthy cash flow: Cash flow represents the amount being transferred in and out of a company. Cash, of course, is needed to pay those dividends;
- Payout ratio: The payout ratio is calculated by dividing a company’s dividends by its net income, telling you what percentage of earnings a company pays to shareholders. A reasonably low payout ratio (60% or less) signifies a sustainable dividend;
- Dividend per share: The dividend per share is calculated by taking the total number of dividends paid by a business and dividing it by the total outstanding shares. This allows investors to get insight into the dollar amount per share;
- Dividend track record: Minimal five-year track record of solid dividend payouts signals continued dividend growth;
- History of raises: It’s a good sign when a company raises its dividend year after year, especially when it can continue during recessions and other challenging economic periods like the worldwide COVID-19 pandemic;
- Revenue and earnings growth: It’s vital to prioritize stability in the companies you consider. Inconsistent revenue (up one year, down the next) or scattered earnings can be signs of trouble;
- Competitive advantages: This is perhaps the most crucial feature. An enduring competitive advantage can come in several forms, including proprietary technology, high barriers to entry, high customer switching costs, or a solid brand name;
- Dividend yield: A high yield (between 2% and 6% is considered good) is preferable to a lower one, but only if the other criteria are met. A dividend yield is how much a company pays out in dividends annually divided by its stock price. A high dividend is only as strong as the company that sustains it, so compare dividend yields after ensuring the company is healthy, and the payout is stable.
Important
How to invest in dividend stocks
Building a portfolio of individual dividend stocks can be time-consuming, but it’s worth it for many investors. Follow these steps to buy dividend-paying stock:
- Find a stock. You can search for dividend-paying stocks on many financial sites or an online broker’s website;
- Evaluate the stock. Use the metrics above to assess your desired dividend-paying stocks;
- Determine how much you want to buy. It’s essential to diversify your portfolio if you’re buying individual stocks, so you’ll need to assess what percent of your funds goes into each share.
5 Monthly dividend stocks
Stock dividends are most commonly paid quarterly. However, some companies choose to pay these monthly or even annually. A company’s board of directors usually approves the dividend and then announces the payout date, the amount, and frequency of the dividend.
Investors can either reinvest dividend payments back into their portfolios or collect them as income. In particular, investors who use the latter option may prefer companies that pay a monthly dividend, as this will provide them with a consistent stream of income (presuming that the company stays profitable).
Many real estate investment trusts (REITs) pay dividends monthly since they must distribute at least 90% of their taxable income to shareholders annually.
Next, we will look at the five best stocks that pay dividends monthly.
1. EPR Properties: 7.92% annual dividend yield (December 2024)
EPR Properties (NYSE: EPR) is a REIT specializing in owning experiential real estate such as movie theaters, eat & play venues, attractions, ski resorts, and fitness and gaming facilities. This REIT operates as a triple net lease REIT, meaning the tenant is responsible for paying the three main costs of real estate (taxes, insurance, and maintenance), dramatically reducing the company expenses.
EPR Properties was founded by Peter C. Brown on August 22, 1997, and is headquartered in Kansas City, MO.
2. Gladstone Capital Corporation: 7.16% annual dividend yield (December 2024)
Gladstone Capital Corporation (NASDAQ: GLAD) operates as a business development company (BDC), focusing on investing in loans to lower middle-market businesses.
GLAD boasts a diversified portfolio in both deal sourcing and industry groups. The company has a reliable track record of stable payouts, even during the recession of 2008. Thanks to its tax classification and favorable fundamentals, the company can maintain its high yield. In addition, similar to REITs, BDCs are required to distribute at least 90% of any taxable income, allowing capital gains to be passed through to shareholders.
The company was founded in 2001 as one of the first BDC funds, is headquartered in Virginia.
3. Sabine Royalty Trust: 8.81% annual dividend yield (December 2024)
Sabine Royalty Trust (NYSE: SBR) owns royalty and mineral interests in a myriad of oil and gas establishments around the United States, with properties in Florida, Mississippi, Louisiana, New Mexico, Oklahoma, and Texas. SBR is a small-cap stock with a market capitalization of $900 million, as of the time of writing.
The company was founded on December 31, 1982.
4. Apple Hospitality REIT: 6.26% annual dividend yield (December 2024)
Apple Hospitality REIT, Inc. (NYSE: APLE) is a publicly-traded real estate investment trust (REIT) that holds one of the most extensive and most diverse portfolios of upscale, rooms-focused hotels in the United States.
Apple Hospitality was formed in 2007 but began trading on the New York Stock Exchange on May 18, 2015.
5. Realty Income Corp: 6.12% annual dividend yield (December 2024)
The clear leader for monthly dividend stocks is Realty Income (NYSE: O). It even labels itself as “The Monthly Dividend Company.” The company employs a highly scalable business model that has allowed it to grow into a gigantic landlord of more than 11,100 properties.
In conclusion
Monthly dividend stocks are a solid way for investors to earn passive income. That income, in turn, can be used to cover their monthly expenses or reinvested to set themselves up to generate even more recurring cash flow.
While many companies pay monthly dividends, these safe monthly dividend stocks stand out as leading options for those pursuing a lucrative income stream that can grow over time.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
FAQs
What are dividend stocks?
Dividend stocks are regular distributions of the company’s earnings to its shareholders. These companies are usually well-established, typically publicly-traded, with stable earnings and a long track record of paying out dividends to shareholders. The distributions are called dividends and are generally paid monthly, quarterly, or yearly.
What is the dividend yield, and why is it important?
A dividend yield is how much a company pays out in dividends annually divided by its stock price. For example, if a stock trades at $40 and a company’s annual dividend is $2, the dividend yield is 5%. Generally, a high yield (between 2% and 6% is considered good) is preferable to a lower one. While higher-yielding dividend stocks provide more income, they usually come with greater risk. In contrast, lower-yielding dividend stocks deliver less income but are normally offered by more stable companies with a continuous record of consistent growth and steady payments.
How to evaluate dividend stocks?
Firstly, avoid buying stocks based solely on dividend yield and use the payout ratios to gauge a dividend’s sustainability. Next, study the balance sheet, including debt, cash, and other assets and liabilities. Finally, consider the company and industry itself. Is the company’s business at risk from competitors, weak demand, or further disruption?
What benefits does dividend investing present?
One of the primary benefits of dividend investing is the potential for double profits. On top of the potential price appreciation, shareholders also receive a dividend. Moreover, these companies typically increase their dividend annually, leading to a further passive income for the investor. In addition, dividend-paying companies are traditionally large-cap companies with stable earnings and low volatility.
