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All Contents © 2019The Kiplinger Washington Editors
By Charles Lewis Sizemore, CFA, Contributing Writer
| December 2, 2019
The typical American's life tends to be organized around monthly payments, yet somehow, monthly dividend stocks are the exception, not the norm.
Your mortgage, your car payment, your phone bill … even your Netflix payment is on a regular monthly payment plan. That's perfectly fine when you're working and are used to getting one or two paychecks every month. Budgeting is simply a matter of making sure your regular monthly income covers your monthly expenses with a little left over for emergencies.
But once you retire, the situation changes. Sure, the Social Security check still comes monthly, and if you're lucky enough to still get a pension, your income generally comes in monthly as well. But the payout from the vast majority of your investments tends to be a lot more sporadic. Most stocks pay their dividends quarterly, and most bonds pay interest only semiannually.
"Cash flow mismatch is a common problem for recent retirees of all income levels," says Mario Randholm, founder of alternative investments specialist Randholm & Co. "And the cash drag from keeping more cash on hand to compensate for erratic income reduces long-term returns."
High-yield monthly dividend stocks can be part of the solution. Stocks that pay monthly dividends better align your income to your spending.
You shouldn't buy a stock simply because it pays a monthly dividend, of course. That would be as ridiculous as choosing a mortgage bank based on the specific day of the month your payment would be due. Clearly, the stock needs to meet your criteria for yield, quality or growth prospects. But if a stock checks all the right boxes, why not also enjoy a monthly payout?
Here, we'll look at 10 high-yield monthly dividend stocks to buy in 2020.
Data is as of Dec. 1. Stocks listed by yield. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price.
Market value: $2.7 billion
Dividend yield: 5.7%
Let's start with Main Street Capital (MAIN, $43.11), a blue-chip business development company (BDC). Main Street provides debt and equity capital to middle market companies that are generally too large to go to the local banks for capital, but not quite large enough to do a proper stock or bond offering.
The capital Main Street provides typically is used to support management buyouts, recapitalizations, growth investments, refinancings or acquisitions.
BDCs are similar to real estate investment trusts (REITs) in that they are required to pay out substantially all of their earnings in the form of dividends. This is good news for income investors, of course, as many BDCs end up being high-yield dividend stocks, some of which pay monthly.
But there is one downside: It can be difficult to maintain a steady payout when you can't keep extra cash on hand. For this reason, many BDCs end up having to cut their dividends after a slow quarter or two.
That's obviously upsetting to investors. However, Main Street avoids this problem by keeping its regular dividend comparatively low and then topping it off twice per year with special dividends that can be thought of as "bonuses." This makes it among the most conservatively managed high-yield monthly dividend stocks to buy, but shareholders aren't complaining.
At current prices, Main Street yields an attractive 5.7%. The special dividends over the past 12 months have added an extra 1.2% for a total yield of about 7%. That's far from shabby.
Market value: $1.0 billion
Dividend yield: 11.8%
For high current yield, it's hard to beat the mortgage REIT (mREIT) industry. Mortgage REITs are essentially publicly traded hedge funds with a single strategy: They borrow short-term funds cheaply and then invest the proceeds in longer-term, higher-yielding securities such as mortgage bonds.
Armour Residential REIT (ARR, $17.26) is a mortgage REIT that invests primarily in mortgage-backed securities (MBSes) issued by Fannie Mae, Freddie Mac and Ginnie Mae, though it also buys non-agency mortgage securities issued by private banks.
Armour trades at a price-to-book ratio of 0.73, which essentially means it's worth more dead than alive right now. In other words, you could hypothetically buy up the entire company, close it, then sell off its assets for spare parts and still walk away with a profit of 27%.
ARR shares currently yield nearly 12%. Yields that high often indicate an elevated level of risk, and indeed, Armour's monthly dividends have shrunk over the years amid a difficult environment for mREITs. But the potential value proposition and high current yield make ARR worth a look for more risk-tolerant income investors.
Market value: $387.6 million
Dividend yield: 10.7%
Armour isn't alone – mortgage REITs are well-represented among high-yield monthly dividend stocks. Dynex Capital (DX, $16.89), for instance, is another high-dividend mortgage REIT with an attractive monthly payout.
Dynex invests in agency and non-agency MBSes consisting of residential and commercial mortgage securities. It's a smaller REIT, with a market cap of around $390 million. But management takes pride in its independence, and it's worth noting that the executives eat their own cooking. Across the first eight months of 2019, five company insiders engaged in (legal) insider buying.
The company's strategy is to diversify its risk across various agency and non-agency mortgage assets, with an emphasis on shorter-duration holdings to reduce interest-rate risk.
Dynex yields a very respectable 10.7% and trades at a modest 8% discount to book value. But keep in mind that smaller stocks like this can be volatile, and given the small market cap you might want to be careful entering and exiting. If you place a large order on a day when trading volume is light, you could end up moving the price.
That's not a deal-breaker by any stretch. But it's definitely something to be aware of.
Market value: $9.4 billion
Dividend yield: 11.1%
We'll take a look at one last mortgage REIT in AGNC Investment Corporation (AGNC, $17.32).
You might notice that "AGNC" sounds a lot like "agency" when you sound it out. That's intentional. The company invests in residential mortgage pass-through securities and collateralized mortgage obligations in which the principal and interest payments are guaranteed by government-sponsored enterprise or by a United States government agency.
AGNC is one of the biggest and most liquid mortgage REITs with a market cap of more than $9 billion. Perhaps because of its size and status as one of the blue chips in this space, AGNC isn't quite as cheap as some of its peers, though it's still very reasonably priced. It trades almost exactly at its book value.
Of course, if you're reading this, you want to know about the dividend.
The REIT switched from a traditional quarterly dividend to a monthly dividend back in October 2014. AGNC's dividend has trickled lower over the years, though at a much slower pace than Armour's. Regardless, at current prices, the stock yields a very handsome 11%. And that high yield has helped AGNC deliver positive long-term total returns (price plus dividends) despite industry-wide price weakness.
Market value: $25.0 billion
Dividend yield: 3.6%
You can't have a list of monthly dividend stocks and not include the company that, in its own promotional materials, calls itself "The Monthly Dividend Company."
Realty Income (O, $76.63) is, hands down, one of the single best long-term income investments in the history of the U.S. stock market. Since going public in 1994, the REIT has grown its dividend at a 4.5% annual clip. It also has made 592 consecutive monthly dividend payments and has raised its dividend for 88 consecutive quarters.
But it's more than just an income machine, Realty Income has managed to deliver compound annual average total returns of 16.8% per year. Translation: This REIT provides growth, too.
Perhaps the most remarkable aspect of that track record is that Realty Income has managed to do it with what might be the most boring portfolio of any traded REIT. The typical Realty Income property is a Walgreens (WBA) pharmacy or a 7-Eleven convenience store.
Realty Income is by no means the highest-yielding monthly dividend stock in this list. At current prices, it only yields 3.6%. But if you're looking for a stable, long-term monthly dividend payer that won't give you any drama, O shares are a solid choice. Indeed, Realty Income is probably the closest thing to a bond you're ever going to find in the stock market.
Market value: $4.1 billion
Dividend yield: 4.6%
Continuing the theme of boring, we come to mid-cap REIT STAG Industrial (STAG, $30.99). While "STAG" might stir up images of an aggressive young buck of a company, nothing could be further from the truth. STAG is an acronym for "single-tenant acquisition group."
In a nutshell, STAG runs a portfolio of single-tenant light industrial buildings. Its typical property might be a distribution center or a light manufacturing facility. It's the sort of gritty property that undergirds the economy, but it's not the sort of structures you'd generally want to have in your backyard.
You would, however, like to see it in an investment portfolio.
Shares yield a respectable 4.6%. And the REIT has a long history of raising its dividend. Since converting to a monthly payout in 2013, STAG has raised its dividend at least once per year.
STAG isn't by any means a get-rich-quick stock, but it likely won't give you many headaches, either. Consider this among the most drama-light monthly dividend stocks to buy.
Market value: $5.6 billion
Dividend yield: 6.4%
Let's take a look at one final REIT: EPR Properties (EPR, $70.92).
EPR formerly was known as Entertainment Properties, which was an appropriate name. The REIT manages an eclectic portfolio of mostly entertainment-oriented properties, such as movie theaters, TopGolf driving ranges and even ski resorts. And beyond its core entertainment portfolio, EPR also owns a portfolio of educational facilities rented to private schools and early childhood centers.
EPR's portfolio is much different from virtually every other REIT you're going to find. That makes it difficult to classify. You see, it's not exactly a retail REIT, but it's not a lodging REIT either. Sector specialists tend to overlook it, making EPR something of an orphan stock.
This helps to explain why EPR tends to be relatively cheap for a REIT its size. No one quite knows what to do with it.
That's good for us, though. Its quirkiness allows us to collect more income. At current prices, EPR yields an attractive 6.4%. The REIT has been paying its dividend on a monthly basis since 2013.
Market value: $8.9 billion
Dividend yield: 4.4%
Let's step away from stodgy, boring old REITs for a minute and get a little more exotic. While the U.S. is the world's largest and most developed market, it's not the only game in town. Living standards are rapidly rising in the developing world, creating fantastic opportunities for investors willing to roll the dice on emerging-markets stocks.
Colombian banking group Grupo Aval Acciones y Valores S.A. (AVAL, $7.98) is an interesting way to play the rise of the Latin American middle class. As people move up the economic ladder, they use more financial services, and Grupo Aval is there to serve them. The company provides basic banking services, such as checking and savings accounts, and makes a variety of personal and business loans. The company also has brokerage and investment banking arms and insurance operations.
Emerging markets have been a difficult asset class in recent years, lagging the performance of the U.S. market by a wide margin. But these things tend to be cyclical, and emerging markets as a group are certainly priced to outperform their American peers.
Grupo Aval has been paying monthly dividends since 2014 and at current prices yields 4.4%. Note that, due to currency fluctuations, the dividend may appear to change from month to month. That's perfectly normal and to be expected for foreign companies trading in the U.S. market. But foreign high-yield monthly dividend stocks? That's a rarity.
Market value: $290.1 million
Dividend yield: 2.2%
For another outside-the-box option, consider Global Water Resources (GWRS, $13.47), a water resource management company that owns, operates, and manages regulated water, wastewater and recycled water utilities primarily in metropolitan Phoenix, Arizona.
The company was founded in 2003 and serves approximately 55,000 people in 21,000 homes.
Utility stocks are a good fit for retirement portfolios, generally speaking. They tend to be relatively stable, at least relative to the rest of the stock market, and place a strong emphasis on dividends.
The problem is that most traded utilities focus on electricity, and that market is changing. As solar and battery technology make it easier and cheaper with every passing year to go "off the grid," electric utilities find themselves in the unwelcome situation of having to make power available at all times to consumers that may not want or need it.
Water is a different story. Unless you plan on digging a latrine or installing a septic system, you're going to need a proper wastewater system. And unless you're wildly eccentric and plan on collecting rainwater in a cistern, you're going to need basic water service.
Global Water is the lowest-yielding stock on this list by a considerable gap, at just 2.2%. But that's better than you'll find in most pockets of the bond market, it's better than the dividend yield on the S&P 500, and most importantly, it's growing. Many monthly dividend stocks (including some on this list) feature stagnant or even slowly decreasing payouts, but GWRS has been improving its regular dole, albeit slowly, for years.
Market value: $491.9 million
Distribution rate: 19.5%*
If you’re looking to spice up your portfolio a little, Oxford Lane Capital (OXLC, $8.31) might be a decent option.
Let's be clear: Oxford Lane is riskier than most of the high-yield monthly dividend stocks in this list. But there is nothing wrong with taking a little extra risk if you're diversified and keep your position sizes reasonable.
Oxford Lane is a closed-end fund (CEF) that invests in collateralized loan obligations (CLOs).
CLOs got a bad rap during the 2008 crisis, and justifiably so. But it's important not to throw out the baby with the bathwater. The basic principle of pooling relatively risky loans together for diversification is a solid one, assuming you're being paid enough to accept the risk and that you don't overdo it. The problem in 2008 was that the process simply got out of hand. Banks lent too aggressively to too many questionable borrowers, then dumped the risk onto naïve investors.
Wall Street being Wall Street, there will always be shenanigans. But these days, the questionable behavior seems to be revolving around tech IPOs rather than debt instruments.
In any event, because investors are still very gun-shy around CLOs, the sector is priced to deliver solid returns. OXLC currently sports a dividend yield of nearly 20%.
Obviously, a yield that high doesn't come without risk. But if you're looking to juice your monthly income and don't mind being aggressive with a little of your capital, OXLC is worth a look.
* Distribution rate can be a combination of dividends, interest income, realized capital gains and return of capital, and is an annualized reflection of the most recent payout. Distribution rate is a standard measure for CEFs.
** This figure includes management, incentive and other fees, as well as a 4.78% interest expense that will vary over time.