Worthy Investing: Unlocking Monthly Dividend Potential

Monthly dividend stocks are a great option for investors looking to supplement their income, particularly those in retirement. While it is more common for dividends to be paid quarterly or annually, the steady stream of income that monthly dividends provide can make budgeting easier and help to smooth out an investor's income stream.

Out of around 3000 companies that pay dividends on a regular basis, only about 50 pay dividends monthly. These companies tend to be in industries that run on monthly payments, such as commercial or residential real estate, hospitality, aviation, and finance.

Some examples of companies that pay monthly dividends include:

- Realty Income Corp. (O)

- Cross Timbers Royalty Trust (CRT)

- PennantPark Floating Rate Capital Ltd. (PFLT)

- LTC Properties (LTC)

- Dynex Capital Inc. (DX)

- Gladstone Capital Corporation (GLAD)

- Orchid Island Capital (ORC)

- Phillips Edison & Co. (PECO)

- PermRock Royalty Trust (PRT)

- Apple Hospitality REIT (APLE)

Monthly dividend stocks for income planning

Monthly dividend stocks are a great option for investors looking to supplement their income, especially those in retirement. While dividends are typically paid out quarterly or annually, the following stocks offer the benefit of monthly payments.

Realty Income Corp. (O)

Realty Income is a real estate investment trust (REIT) with a diverse portfolio of over 15,000 commercial properties across the US, making it one of the longest-standing monthly dividend payers in the real estate sector. The company has a strong track record of increasing its payouts and is a member of the Dividend Aristocrats club, having raised its dividends for at least 25 consecutive years. Its tenants include well-known corporations such as 7-Eleven, Dollar General, and Lowe's, operating in industries like convenience stores, pharmacies, and big-box retail stores.

Cross Timbers Royalty Trust (CRT)

Cross Timbers is an energy company that collects natural gas and crude oil royalties from productive real estate in Oklahoma, New Mexico, and Texas. It is a small company but generates significant income relative to its size. In a year when the average oil price was $77.05 per barrel, Cross Timbers generated $12.3 million in revenue, with $11.5 million being distributable income, allowing for sizable dividends to shareholders. With oil prices trading at a similar level or higher, investors in Cross Timbers can expect higher payouts and share prices.

PennantPark Floating Rate Capital Ltd. (PFLT)

PennantPark is a finance company that provides secured loans to small and mid-sized private US companies, particularly those in the high-growth or buyout stages of their lifecycles. It also offers mezzanine loans and takes high-yielding preferred equity stakes. The company's loans are in the category of floating-rate debt, where the interest rate adjusts up or down based on the current rate environment, making them less volatile than fixed-rate securities. PennantPark's management team is highly experienced and focused on consistent performance over the long term.

Agree Realty Corp. (ADC)

Agree Realty is an integrated REIT focused on retail property management and development. The company has a strong balance sheet and has developed over 40 community shopping centers in the Midwestern and Southeastern US. Agree Realty offers a monthly dividend with a yield of about 5%.

Dynex Capital Inc. (DX)

Dynex Capital is a mortgage REIT that invests in mortgage-backed securities, including both commercial and residential real estate. The company uses leverage as an investment strategy, buying mortgage bonds with borrowed money, which can enhance income and returns but also exaggerate losses. Dynex owns both agency and non-agency bonds, with some backed by government agencies like Freddie Mac and Ginnie Mae.

Other Notable Mentions:

• Gladstone Capital Corp. (GLAD): A business development company (BDC) that provides high-interest loans to small and mid-sized companies, often those preparing for an initial public offering.
• STAG Industrial (STAG): A REIT that invests in logistics and light industrial properties, benefiting from the growth of e-commerce.
• LTC Properties (LTC): A REIT with a portfolio of senior living and skilled nursing properties, benefiting from long-term demographic trends as the Baby Boomer generation ages.
• EPR Properties (EPR): A specialty REIT investing in entertainment, recreation, and education properties, with a focus on providing experiences rather than material goods.
• AGNC Investment Corp. (AGNC): A mortgage REIT that invests in agency mortgage-backed securities, providing a safer play in this space.

Benefits of monthly dividends

Monthly dividends are a subcategory of dividend stocks, which are shares of publicly traded companies that pay a portion of their profits to shareholders. While many dividend stocks pay out dividends quarterly or annually, monthly dividend stocks pay out every month.

Regular Income

Receiving dividends every month can provide a steady stream of income, especially for retirees or those with fixed budgets. This regular income can help cover regular bills, grow savings, pay down debt, or invest for the future.

Reinvestment and Compounding

Monthly dividends offer more opportunities for reinvestment and compounding. Dividend reinvestment plans (DRIPs) allow investors to use their dividend payouts to purchase additional shares of stock. By reinvesting dividends consistently, investors can benefit from the effects of compounding and potentially increase their overall returns over time.

Easier Budgeting and Cash Flow Management

Monthly dividends provide more frequent cash flow, making budgeting easier. Investors can have more cash on hand to seize opportunistic purchases or manage their expenses more effectively.

Higher Total Returns

By reinvesting monthly dividends, investors can achieve greater total returns over time. The more frequent compounding of returns can lead to higher overall gains, especially over long periods.

Attract Investors and Signal Financial Strength

Companies that pay monthly dividends may attract new investors who are seeking regular income. Consistent dividend payments can also signal a company's financial strength and stability, making it more attractive to investors.

Who pays monthly dividends?

Only about 50 public companies pay dividends monthly out of some 3,000 that pay dividends on a regular basis. The monthly payers are often related to commercial or residential real estate, hospitality, aviation, or finance.

• Realty Income Corp. (O)
• Cross Timbers Royalty Trust (CRT)
• PennantPark Floating Rate Capital Ltd. (PFLT)
• Agree Realty Corp. (ADC)
• Dynex Capital Inc. (DX)
• STAG Industrial (STAG)
• LTC Properties (LTC)
• Dynex Capital (DX)
• Gladstone Commercial Corporation (GOOD)
• Apple Hospitality REIT (APLE)
• PermRock Royalty Trust (PRT)
• Gladstone Capital Corporation (GLAD)
• Orchid Island Capital (ORC)
• Phillips Edison & Co. (PECO)
• Gladstone Land Corp. (LAND)

Dividend reinvestment plans

DRIPs are typically offered by publicly traded companies to existing shareholders, although some companies make them available to new investors as well. They are usually administered by the company's transfer agent, who holds the shares. Some brokerages also allow customers to participate in DRIPs while keeping their shares at the brokerage firm.

There are several advantages to DRIPs for both investors and the companies issuing the shares. For investors, DRIPs offer a way to accumulate more shares without paying commissions or fees. Many companies offer shares at a discount through their DRIP, and investors can also buy fractional shares. Over time, the compounding effect of automatic reinvestment can lead to higher returns.

For companies, DRIPs provide additional capital and create long-term investors who are less likely to sell their shares during a market decline.

It is important to note that dividends paid into DRIPs are taxed as capital gains or ordinary income, depending on the type of dividend and the holding period. Additionally, reinvesting dividends means that investors do not receive the cash payout, which could be used for other purposes.

Risks of investing in monthly dividend stocks

While monthly dividend stocks can be a great addition to your portfolio, there are some risks to investing in them that you should be aware of.

Firstly, monthly dividend stocks tend to be concentrated in a small number of sectors, such as real estate investment trusts (REITs) and business development companies (BDCs). This lack of diversification can increase your risk if these sectors underperform or are impacted by economic downturns.

Secondly, monthly dividend stocks often have elevated payout ratios, which means there is less margin for error if the company experiences a decline in business results. A high payout ratio also means the company retains less money for future growth, which may lead to aggressive leveraging and high debt levels.

Thirdly, a company with a high dividend yield may be in financial distress. A high yield could be the result of a drop in the company's share price, and the company may soon reduce or eliminate its dividend to conserve cash. Therefore, it is important to scrutinize the company's financial health, free cash flow, historical dividend payout ratio, and other metrics to ensure they can maintain their dividend payments.

Additionally, dividend stocks are vulnerable to rising interest rates. As rates rise, the risk-free rate of return offered by government securities becomes more attractive to investors, making dividend stocks less appealing.

Lastly, monthly dividend stocks may not always be sustainable. While receiving income every month can be attractive, it is important to remember that companies are not mandated to pay dividends and can change their dividend policies at any time.

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