10 High-Yield Monthly Dividend Stocks and Funds to Buy
Monthly dividend stocks align investors' income with their regular expenses.
Monthly dividend stocks might seem like a gimmick, given that most American stocks pay out dividends quarterly. But they provide a very real service to income investors – especially those who have reached retirement.
Capital gains can be fleeting, as we saw during last year’s two brutal corrections, but a regular stream of dividends and interest can actually put the cash in your hands to pay the bills, whether the market goes up, down or sideways.
Unfortunately, most income investments are designed remarkably poorly for their task. Bonds generally pay semiannually (twice per year). That made sense back in the days when “coupon payments” were literally based on paper coupons, but it hardly makes sense in an era in which bonds are nothing more that electronic entries. And again, most stocks pay their dividends quarterly. That’s nice, but it’s hardly helpful when your bills come monthly.
It wouldn’t be particularly prudent to make the monthly payment schedule your primary reason for buying a stock. Clearly, safety and growth prospects matter far more. But all else equal, a portfolio of monthly dividend stocks can give your portfolio a baseline of income to tide you over in those months when your bonds and regular quarterly dividend payers aren’t paying.
With that in mind, here are 10 solid monthly dividend stocks and funds to buy. These are also mostly high-yielding investments, ranging from 3% to 15%.
Data is as of April 30. Dividend yields are calculated by annualizing the most recent monthly payout and dividing by the share price.
- Market value: $3.6 billion
- Dividend yield: 5.0%
- STAG Industrial (STAG, $28.78) is a “boring” real estate investment trust (REIT), and in investing, boring is beautiful – especially in solid, payout-growing monthly dividend stocks.
Since converting from a quarterly payout to a monthly payout in 2013, STAG has grown its dividend at a slow but steady 3.5% per year. That’s not get-rich-quick money by any stretch of the imagination, but it’s well ahead of the rate of inflation, which means investors are coming out ahead.
STAG owns a portfolio of 395 gritty industrial properties spread across 38 states and occupying 78.2 million square feet. Its typical property might be a distribution center or a light manufacturing facility – essential to the functioning of the U.S. economy, but not exactly something you would want in your backyard. Also, a nice aspect of industrial real estate is there is very little need for maintenance. No one is going to complain if the warehouse paint gets a little scuffed up.
Interestingly, while Amazon.com (AMZN) is taking a wrecking ball to brick-and-mortar retailers and forcing a lot of companies to reconsider their real estate needs, STAG actually benefits from the expansion of e-commerce and views it as a major opportunity.
Drilling down into the portfolio, STAG is well diversified geographically, with its largest market – Philadelphia – accounting for just 9.4% of its total square footage. STAG also is broadly diversified across sectors, with no single industrial sector making up more than 15% of the total. Perhaps most importantly, no single tenant accounts for more than 2.3% of the rent roll.
There is no such thing as a truly 100% recession-proof business. But STAG comes awfully close.
- Market value: $1.8 billion
- Dividend yield: 5.1%
- LTC Properties (LTC, $45.06) is an aptly named REIT; the letters stand for “long-term care,” which is exactly the kind of facility this REIT owns. LTC has been in business since 1992 and owns a portfolio of more than 200 properties split approximately 50/50 between senior housing and skilled nursing properties, with a peppering of other facilities. The REIT is active in 28 states and works with 31 operating partners.
That’s an important point. Nursing homes are a tough business to operate profitably given the labor and regulatory costs, as well as the fact that the government generally is the ultimate payer. But LTC doesn’t run the nursing homes – that’s the job of its operating partners. LTC is a passive landlord that collects the rent, then distributes most of it to its shareholders via the monthly dividend.
Health and senior living properties aren’t exactly exciting, but demand should surge during the next 20 years because of the aging of the baby boomers. More than 10,000 boomers turn 65 every single day, so this generation will need more and more health services with each passing year. Demographic trends are on LTC’s side.
- Market value: $21.3 billion
- Dividend yield: 3.9%
The last equity REIT we’ll cover should be (and usually is) on any list of monthly dividend stocks. It’s “The Monthly Dividend Company” itself: triple-net retail REIT Realty Income (O, $70.01).
Realty Income may be the single most boring stock in the entire Standard & Poor’s 500-stock index. It doesn’t actually do anything. It simply sits back and collects the monthly rent on its 5,700-plus properties. “Triple-net” means that tenants are in charge of three particular expenses: maintenance, taxes and insurance.
But while Realty Income is not a particularly exciting company, that hasn’t stopped it from being wildly profitable. Since its 1994 IPO, the stock has produced compound annualized returns of 16.9%. The dividend itself has compounded at a rate of 4.6% per year.
It’s important to remember that interest rates across the yield curve were a lot higher in the 1990s and that Realty Income benefitted from 25 years of falling yields. So, 16.9% annual returns probably aren’t realistic going forward. But the 4.6% in annual dividend growth still seems reasonable. Add in a current yield of nearly 4%, and you have a recipe for annualized total returns of more than 8% going forward. Again, this isn’t get-rich-quick money, but it’s respectable in a world in which the 10-year Treasury yields just 2.5%.
Brad Thomas, recognized REIT expert and the editor of Forbes Real Estate Investor, summed it up nicely recently, saying, “I know of no other REIT that I would like to own for the next 10 years or perhaps longer than ‘the monthly dividend company.’”
Main Street Capital
- Market value: $2.4 billion
- Dividend yield: 6.1%
Business development companies (BDCs) haven’t done much over the past two years, mostly just trading sideways. But considering BDCs tend to be some of the highest-yielding investments in the market, that’s not a particularly big problem.
As a case in point, consider Main Street Capital (MAIN, $39.47). Main Street’s share price has been parked at just under $40 per share for the past two years. But dividends have enabled Main Street to deliver total returns of about 14%. That’s not a windfall return by any stretch, but it’s solid for an income investment.
Main Street has a quirky dividend policy that helps to keep it out of trouble. Rather than follow the lead of some of its peers by paying out every free nickel in dividends, MAIN keeps its regular monthly dividend relatively low and easy to cover. It then tops up the regular dividend with special dividends twice per year.
Main Street’s dividend yield based on its regular monthly payout is about 6%. But if you add in special dividends over the past year, you get to a total yield of about 7.3%.
In a market that looks more and more bubbly, it’s rare to find quality companies trading at the same price they were two years ago. That alone should make Main Street worthy of a deeper look.
- Market value: $139.4 million
- Dividend yield: 11.5%
On the theme of BDCs, Capitala Finance (CPTA, $8.67) also merits consideration. Capitala Finance is managed by Capitala Group, a $2.7 billion asset management firm that provides capital to small and middle-market businesses in North America.
Capitala Finance generally invests anywhere from $5 million to $50 million in each transaction and focuses on companies with at least $4.5 million in trailing earnings before interest, taxes, depreciation and amortization (EBITDA). The BDC is primarily a debt investor but also will make equity investments in its portfolios from time to time.
Capitala yields an impressive 11.9%. However, this is a relatively young company with a trading history going back only to 2013, and one that reduced its payout by 36% in 2017 to bring it more in line with its finances. It’s also a small-cap stock with a market cap of just $138 million. To put that in perspective, Main Street sports a market cap of $2.3 billion.
This is probably the highest-risk selection among these monthly dividend stocks. Be careful with Capitala, and keep your position size modest. It could be difficult to get in and out of large positions in this BDC without moving the stock price.
- Market value: $9.5 billion
- Dividend yield: 12.1%
- Take a good look at AGNC Investment’s (AGNC, $17.79) ticker symbol. It looks a lot like “agency,” doesn’t it?
That’s not a coincidence. AGNC is a mortgage REIT (mREIT) that invests in mortgage bonds, collateralized mortgage obligations and other mortgage-related securities that are backed by government-sponsored agencies and enterprises. To put that in plain English, AGNC manages a portfolio of Fannie Mae, Freddie Mac and Ginnie Mae securities.
Like many high-yield stocks, the company has had a wild ride in recent years. AGNC launched its IPO in 2008, right as the 2008 meltdown was getting underway. But the company was able to take advantage of discounted pricing during those lean years and enjoyed a fantastic run. Shares had grown from $20 at IPO to more than $36 by late 2012.
Alas, it really went downhill from there.
Mortgage REITs are not like their cousins, equity REITs. They do not own real property and they do not have built-in inflation hedges. Instead, mortgage REITs are a lot more like aggressive hedge funds that play the carry trade, borrowing short-term and lending long term. Dividends tend to be variable and based on that spread. When the spreads between long-term and short-term rates go from narrow to wide, mREITs mint money. When the spreads go from wide to narrow, mREITs have a hard time maintaining their dividends and they need to cut them.
That’s what happened to AGNC years ago, and why the share price has taken such a tumble. The good news? AGNC’s stock price has been very stable since 2015, and the shares yield an impressive 12%.
Colony Credit Real Estate
- Market value: $2.0 billion
- Dividend yield: 11.2%
Along the same lines, let’s look at Colony Credit Real Estate (CLNC, $15.54). Colony Credit is not a mortgage REIT, per se, but it’s similar in concept. It’s a commercial real estate credit REIT focused on originating, acquiring, financing and managing a portfolio of commercial real estate debt.
Essentially, Colony is a real estate lender that is organized as a REIT for tax reasons. REITs pay no corporate income taxes so long as they distribute at least 90% of their net income as dividends.
Colony Credit is a relatively small REIT, at $2.8 billion, with a portfolio valued at $5.5 billion spread across 76 loans.
As a debt investor, Colony is less at risk of any turbulence in the property market than an equity investor. But property prices are looking a little frothy in a lot of markets, and we’re late in the economic expansion. So, volatility in this space cannot be ruled out if the economy starts to cool. At an impressive yield of 11%, you’re at least being richly compensated for that risk.
BlackRock Core Bond Trust
- Market value: $723.8 million
- Distribution rate: 5.8%
- Expenses: 1.60%
After looking at a myriad of REITs, BDCs and other niche monthly dividend stocks, let’s take a step back and look at a good, old-fashioned bond fund.
The BlackRock Core Bond Trust (BHK, $13.42) is a closed-end bond fund that’s been throwing off regular income since 2001. BHK is very much a one-stop shop for the bond market, investing in a mixture of government bonds, investment-grade corporates, mortgage bonds, high-yield bonds and a handful of others.
As of the most recent filing, 29% of the portfolio was AAA-rated (the top possible credit rating) with another 4% and 13% rated AA and A, respectively. Another 28% was invested in BBB-rated bonds. So nearly three-quarters of the portfolio is considered investment-worthy.
You shouldn’t expect much growth in BHK; this is a bond fund, pure and simple. But at current prices, it yields an attractive 5.8% and trades at a 6.5% discount to net asset value (NAV), which means you’re essentially buying its holdings for 93.5 cents on the dollar.
Invesco BulletShares 2022 Corporate Bond ETF
- Market value: $1.2 billion
- SEC yield: 3.0%*
- Expenses: 0.10%
Bond ETFs can be a cheap and efficient way to get access to the bond market. So, let’s take a look at the Invesco BulletShares 2022 Corporate Bond ETF (BSCM, $21.13).
The only problem is that, unlike the actual bond themselves, bond ETFs generally don’t have a maturity date. They are presumed to be perpetual. That’s fine when bond yields are high and going lower, as they were for most of the past 40 years. But what if yields go higher from here? Suddenly, that’s a problem. As bond yields rise, bond prices fall. That means many bond ETFs become far riskier endeavors than most of their current investors realize.
Invesco’s BSCM has a unique solution for this problem.
The fund invests in a portfolio of bonds with maturities in 2022, and the fund itself will terminate in December 2022. This makes this diversified bond fund a lot more like an individual bond, though with one major exception: Rather than pay semiannually, it pays monthly!
Invesco has BulletShares corporate-bond funds going all the way out to 2028, so when one fund is ready to terminate, plenty more options are waiting in the wings.
* SEC yield reflects the interest earned after deducting fund expenses for the most recent 30-day period and is a standard measure for bond and preferred-stock funds.
Oxford Lane Capital
- Market value: $274.3 million
- Distribution rate: 14.9%*
- Expenses: 9.72%**
- Oxford Lane Capital (OXLC, $10.88) is a little more exotic than the rest of these picks.
Oxford Lane is a closed-end fund (CEF) that specializes in collateralized loan obligations (CLOs). CLOs are pools of loans that have been packaged into single securities. The underlying borrowers often have low credit ratings, and the CLO is essentially an attempt to reduce risk by diversifying across borrowers.
If you just felt a chill go down your spine, it’s certainly understandable. CLOs, CMOs and the rest of the alphabet soup of exotic loan and mortgage derivatives were what led to the 2008 meltdown and the near-destruction of the financial system.
But that feeling of revulsion is exactly why you should give the sector some consideration. Warren Buffett has repeatedly said that the secret to his success as an investor is to be fearful when others are greedy and greedy when others are fearful. And even a decade after the 2008 meltdown, investors still are largely fearful of this asset class.
The main appeal of Oxford Lane is its 13.5-cent monthly distribution, which works out to a massive yield of roughly 15%. That payout appears to be covered by current cash flows (cash flows from CLOs can become irregular, so that’s important). It’s worth noting that the company cut its dividend fairly aggressively in 2017 after it took losses in the energy sector rout. But OXLC grew its payout slightly at the beginning of 2018 and has kept it stable ever since.
The CLO space is notoriously opaque, and it’s not particularly easy to know what you’re buying here. Moreover, you’re absorbing a large annual expense, though some of that is interest expense resulting from the use of leverage. But management has a long track record, and OXLC has been a strong performer since bottoming in early 2016.
Tread carefully here, but a small position in Oxford Lane could bring up the average yield of your portfolio.
* 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 a 4.35% baseline expense that includes management, as well as a 5.38% interest expense that will vary over time.
Charles Sizemore was long O at the time of writing.