Cash management can be one of the biggest challenges in retirement. Your bills – everything from your mobile phone service to your rent or house payment – come on a monthly cycle. When you work, and get paid every month or two weeks, that isn’t a problem. But once you retire, it can get a lot more complicated.
Sure, your Social Security payment comes monthly. But your dividend stocks generally only pay out quarterly, and bond coupon payments are typically only twice per year. This can cause your cash flows to be lumpy, which can make planning difficult. And frankly, when you’re retired, you do not want to plan cash flow with your free time. That’s what your working years were for.
This is where monthly dividend stocks come in handy.
A monthly dividend calendar better aligns with your living expenses. But the benefits actually go beyond financial planning. If you’re still working and reinvesting your dividends for growth, a monthly dividend will compound faster over time. It won’t make much of a difference in a single year or two, but over an investing lifetime, it adds up. Playing with the numbers, $100,000 invested in a stock delivering a 7% yield compounded quarterly will grow to $801,918.34 over 30 years. That same $100,000 would grow to $811,649.75, if the compounding were switched to monthly.
Today we’re going to look at seven monthly dividend stocks to reliably pay your bills in retirement. Not all pay jaw-dropping high yields – in fact, I tend to avoid exceptionally high-yielding dividend stocks, as those yields generally come with much greater risk. That high dividend won’t do you a lot of good if it gets cut tomorrow. Instead, we’re going to focus on stocks with attractive but sustainable yields.
Data is as of Oct. 18, 2017. Click on ticker-symbol links in each slide for current share prices and more.
- Symbol: LTC (opens in new tab)
- Share price: $47.52
- Market value: $1.9 billion
- Dividend yield: 4.8%
- LTC Properties is a real estate investment trust (REIT) specializing in skilled nursing and senior living properties. In fact, “LTC” is short for “long-term care.”
About 86% of LTC’s portfolio is invested in properties in the skilled nursing and assisted living market, with the remainder invested in mortgages and notes backed by properties in the sector. The property portfolio is diverse, spanning 207 properties run by 29 operators in 28 states. And perhaps best of all, the properties are rented on a triple-net basis, meaning that taxes, insurance and maintenance are the responsibility of the tenants. Once the properties are operational, LTC’s responsibility is limited to collecting the rent checks.
And thankfully, most of the revenues backing those rent checks is paid by private patients and their insurers, not Medicare or Medicaid.
REIT expert Brad Thomas, editor of Forbes Real Estate Investor, recently wrote that due to the triple-net model, “There is no operator risk and the total portfolio is 52% private pay … I consider LTC a high-quality monthly dividend payer that can now be purchased at sound value.”
Since 2005, the company has raised its dividend at a 4.9% compound annual rate, well above the rate of inflation. And today, you can collect a respectable 4.8% current yield.
LTC is the sort of reliable dividend payer you want in a retirement portfolio. Its business model is simple, and demographic trends – namely the aging of the Baby Boomers – suggest healthy growth for the foreseeable future.
- Symbol: O (opens in new tab)
- Share price: $56.29
- Market value: $15.4 billion
- Dividend yield: 4.5%
I believe any list of monthly dividend stocks must include “the Monthly Dividend Company” itself, Realty Income.
Realty Income may very well hold the distinction of being the most boring stock in the entire stock market. Like LTC, Realty Income is a triple-net REIT, but its portfolio tends to consist of high-traffic neighborhood retail properties, like the local pharmacy or dollar store. In fact, two of its largest tenants are Walgreens (WBA (opens in new tab)) and Dollar General (DG (opens in new tab)).
With more than 5,000 properties spread across 250 tenants in 49 states and 47 industries, Realty Income is about as diversified as a REIT can be.
And the dividends …
Realty Income has paid out 566 consecutive monthly dividends and has increased its dividend in 80 consecutive quarters. At current prices, Realty Income yields a reasonable 4.5%, and it has grown that dividend at a 4.6% compounded annual rate since its 1994 IPO. That’s a good run if I’ve ever seen one.
“More than anything, I've found that our clients want income consistency,” says Sonia Joao, president of Houston-based Robertson Wealth Management, an investment firm with more than $2 billion under management. “And Realty Income is easily one of the most consistent dividend stocks you're ever likely to find. If bought at the right price, it's one you can potentially hold for years.”
I own shares of Realty Income that I’ve owned for about a decade now that I’ve sworn to never sell. I’ve been automatically reinvesting the dividends, and I intend to gift the shares to my kids someday. If they’re smart, they’ll hold on to them and let the dividends continue to compound indefinitely.
- Symbol: EPR (opens in new tab)
- Share price: $70.92
- Market value: $5.2 billion
- Dividend yield: 5.8%
I’d like to include one more REIT for good measure: entertainment-focused EPR Properties.
Amazon.com’s (AMZN (opens in new tab)) assault on traditional retail has been relentless, and I don’t see it letting up any time soon. America has roughly five times more retail space per capita than the United Kingdom, implying that our retail sector would be overbuilt even in the absence of the online retail revolution. So it shouldn’t be surprising that a lot of retail landlords are suffering.
This is what makes EPR so attractive. Its quirky property mix is about as “Amazon-proof” as you can hope to get, including everything from Topgolf-branded driving ranges to ski ranges. EPR also specializes in school properties and early childhood education centers. It’s an eclectic mix of real estate you’re not likely to find anywhere else, and none of them are services you can order online. And as with the other REITs I mentioned, EPR is a triple-net landlord, meaning it has very little operational risk.
This monthly dividend stock sports a current yield of 5.8%, which is very competitive in this market. And EPR consistently hikes its dividend, raising it at a compounded annual rate of 3% over the past 10 years.
- Symbol: PBA (opens in new tab)
- Share price: $33.46
- Market value: $16.8 billion
- Dividend yield: 5%
Midstream oil and gas pipeline operators can be very stable and predictable businesses. And before you throw something at me, I do indeed remember the 2015 selloff in energy shares. Many “stable” midstream companies proved to be anything but, and had a lot more exposure to energy price movements than most of us realized or appreciated. Before the rout was over, even some blue-chip operators such as Kinder Morgan (KMI (opens in new tab)) were forced to reduce their payouts.
I remember. It wasn’t fun.
But several midstream operators sailed through the oil-price implosion with their distributions intact, and some even managed to grow them. Canadian operator Pembina Pipeline was one of them.
Pembina operates a roughly 10,000-kilometer network of pipeline assets in Canada and North Dakota, and its cash flows are 100% fee-based with zero direct exposure to commodity prices. The company says it transports “approximately half of Alberta’s conventional crude oil production, about thirty percent of the NGL produced in western Canada, and virtually all of the conventional oil and condensate produced in B.C.” So it’s safe to say Pembina is one of Canada’s most important energy infrastructure companies.
At current prices, Pembina’s monthly dividend yields a respectable 5%. But it also has been growing that dividend at 4.7% annually over the past five years. In this energy market, that’s not bad at all.
Main Street Capital Corporation
- Symbol: MAIN (opens in new tab)
- Share price: $40.36
- Market value: $2.3 billion
- Dividend yield: 5.6%
For another solid monthly dividend stock, consider Houston-based business development company (BDC) Main Street Capital Corporation.
If you are unfamiliar with BDCs, they are essentially publicly traded private equity companies. Listing on the New York Stock Exchange or another major exchange can be costly and distracting for smaller or younger companies. Plus, management can find it difficult to focus on long-term value creation when having to deal with the short-term demands from public stockholders. BDCs provide debt and equity financing free of these distractions, and can also offer management expertise. Main Street Capital's portfolio includes the likes of Tin Roof live entertainment venues, as well as technological pricing solutions provider Zilliant.
For regular mom-and-pop investors who would never be able to afford the minimums at a traditional private equity fund, a BDC offers access to an important niche of the market.
MAIN also has a somewhat unusual dividend policy, though one that other BDCs would be wise to copy. The company pays a monthly dividend that is well within its means, then tops it off with semiannual special dividends. This is a smart and conservative way to run things, and it has saved MAIN from the fate of its rival Prospect Capital Corporation (PSEC (opens in new tab)). Prospect has for years chosen to pay a higher monthly dividend, but then finds itself in the unenviable position of having to slash its dividend when cash flow is tight. MAIN has never cut its monthly dividend, and I don’t expect that it will.
Main Street’s monthly dividend works out to an annual payout of 5.6%. Add in the past year’s special distributions, however, and that number rises to more than 7%. That’s solid.
Gladstone Investment Corporation
- Symbol: GAIN (opens in new tab)
- Share price: $9.89
- Market value: $321.7 million
- Dividend yield: 7.8%
- Gladstone Investment Corporation is another stable business development company with a monthly dividend.
GAIN is part of the Gladstone Companies, a family of investment funds specializing in real estate, private equity and debt financing for middle-market companies. Its sister companies include Gladstone Capital Corporation (GLAD (opens in new tab)), Gladstone Commercial Corporation (GOOD (opens in new tab)) and Gladstone Land Corporation (LAND (opens in new tab)), all of which are monthly dividend payers.
The companies’ namesake – David Gladstone – is a seasoned veteran in private equity and has been working in this space continuously since 1974. So, suffice it to say you’re getting experience here. And this BDC invests in a wide variety of businesses, from home and office furniture distributor Belnick to land parcel management software provider Vision Government Solutions.
Gladstone Investment Corporation yields a very attractive 7.8% in dividends, and it has raised its dividend every year since 2011. The payout’s expansion has been modest over the past year, but dividend growth has averaged 5.4% over the past five years, well above the rate of inflation.
Like Main Street Capital, Gladstone also pays a conservative regular monthly dividend, then tops it off with special distributions a couple times each year. That’s a smart move that helps to manage investor expectations and avoid any nasty surprises.
Some advice: Gladstone is a small BDC with a market cap of only $320 million and daily trading volume of a little more than 100,000 shares, which trade at less than $10 each. Thus, it’s probably a good idea to use limit orders -- which are orders to buy at or better than a predetermined price – to ensure you don't pay more for the stock than you intended.
BlackRock Floating Rate Income Trust
- Symbol: BGT (opens in new tab)
- Share price: $14.10
- Market value: $333.7 million
- Distribution rate: 5%*
For my last recommendation, I’m going to throw out something a little different. BlackRock Floating Rate Income Trust isn’t a typical stock, REIT or BDC. It’s actually a special type of fund, called a closed-end fund (CEF), that trades on the NYSE.
You’re likely familiar with exchange-traded funds (ETFs) (opens in new tab), which also are publicly traded on several exchanges, but CEFs are a very different animal. Because ETF units can be created or destroyed based on demand from institutional investors, their market prices rarely deviate much from their underlying portfolio values.
Well, no such mechanism exists for CEFs, so their share prices can (and do) vary wildly from their underlying portfolio values. That can create some interesting trading opportunities in which you can buy a dollar’s worth of assets for 95 cents, 90 cents or even less.
Right now, the BlackRock Floating Rate Income Trust trades at a 3% discount to its net asset value and yields an attractive 5%. And if the Federal Reserve continues to raise interest rates in the coming months, you’ll likely enjoy a modest bump in the payout. That’s because the fund holds a portfolio of floating-rate loans with short maturities. CEFs also use leverage – literally borrowing to invest more – to bolster how much it can invest, so it provides a little more income than what you’ll find in the traditional bond market, though at the cost of a little more risk.
* The yield represents the distribution rate, which 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.
Charles Lewis Sizemore, CFA, was long LTC and O as of this writing.
Charles Lewis Sizemore, CFA is the Chief Investment Officer of Sizemore Capital Management LLC, a registered investment advisor based in Dallas, Texas, where he specializes in dividend-focused portfolios and in building alternative allocations with minimal correlation to the stock market.
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