Your bills generally come monthly. Your mortgage, your car payment, your utility bills … even the gym membership and Netflix subscription come due once per month.
Yet that’s not how most investments typically work. Bonds tend to pay their coupon payments semiannually, and stocks tend to pay their dividends quarterly. You can get paid much more frequently, however. A number of monthly dividend stocks and funds can help you better align your investment income with your living expenses.
Investors received a stark reminder of how important stable income is during the market turmoil of February and March. Not only did the stock market take a nosedive, but many seemingly reliable dividend payers were forced to cut or suspend their payouts.
Furthermore, the coronavirus lockdowns have disrupted the livelihoods of millions of Americans, leaving many to dip into already depleted portfolios to pay their bills.
“Income security is the single biggest concern I’m hearing from my clients,” says Sonia Joao, a wealth manager based in Houston, Texas. “Many of my clients are at that critical age when they become targeted for early retirement, and that’s now more likely than ever with companies being forced to reduce headcount. Replacing that lost income is our top priority.”
Today, we’re going to take a look at 11 of the best monthly dividend stocks and funds that have so far managed the coronavirus with their payouts intact. Not all of these will be exceptionally high yielders. In this environment, it’s better to take a lower but reliable yield than to reach for an unrealistically high yield, only to watch it evaporate before the next payment.
Market value: $18.8 billion
Dividend yield: 5.1%
Realty Income (O, $54.86), a triple-net retail real estate investment trust (REIT), is perhaps most renowned among monthly dividend stocks. The REIT’s identity revolves around its monthly dividend to the point that it trademarked its nickname, “The Monthly Dividend Company.”
Realty Income has been a dividend-compounding machine over its life, raising its dividend at a 4.5% annual clip since going public in 1994. The company has made 597 consecutive monthly payments (and counting) and raised its dividend for 90 quarters in a row.
Landlords have really been hit hard by the coronavirus lockdowns. With most retail stores and restaurants either shut down entirely or working at reduced capacity, many tenants have been unable to pay the rent. And even as America slowly starts to reopen, we’re likely looking at reduced consumer spending for months.
All the same, Realty Income’s management doesn’t seem to be sweating much. In a recent interview with iREIT editor Brad Thomas, Realty Income CEO Sumit Roy said that the “dividend is sacrosanct to who we are.”
Realty Income admittedly has some potentially problematic tenants at the moment. Gym chains LA Fitness and Life Time Fitness make up a combined 5.8% of revenues, and gyms remain closed in much of America. Movie theaters such as Realty Income tenants AMC Entertainment (AMC) and Regal Cinemas also make up 6.3% of revenues, and it might be close to a year before theaters see crowds returns to pre-COVID-19 levels.
But many of its tenants are “essential” retailers such as Walgreens (WBA) and 7-Eleven. Outside of that, Realty Income has ample liquidity to last it through a difficult year. Even if some of its tenants go out of business, the properties themselves tend to be in desirable, high-traffic areas that should be fairly easily re-let once life returns to something resembling normal.
Market value: $3.8 billion
Dividend yield: 5.6%
Apart from best-in-class REITs such as Realty Income, retail REITs likely will face a very difficult operating environment for the rest of this year. Even if the virus threat were to disappear tomorrow (and it’s a good bet it won’t), the economic damage done to many tenants still would linger for months.
But other pockets of the real estate market are far less affected. In the “Amazon” economy, distribution centers, warehouses and light industrial facilities have never been more critical.
This brings us to Stag Industrial (STAG, $25.81).
Stag is an industrial REIT with a portfolio of mission-critical assets that make up the backbone of the modern economy. The company reports that 43% of its portfolio is engaged in e-commerce activity. Perhaps not surprisingly, Amazon.com (AMZN) is STAG’s largest single tenant, making up nearly 2% of rental revenues. Some of its other major tenants include the U.S. government, DHL Supply Chain and even Ford (F).
Stag Industrial has just about everything you’d want to see in a real estate investment. It has low tenant concentration risk, low debt (4.4x EBITDA), and it is largely immune from coronavirus disruptions. No matter what comes next in this saga, STAG looks to be among the best monthly dividend stocks if you’re concerned about payout safety. And at today’s prices, you’re locking in a 5.6% yield.
Market value: $1.4 billion
Dividend yield: 6.5%
For one final REIT, let’s take a look at LTC Properties (LTC, $35.28).
In case you’re wondering what LTC does, the name says it all. “LTC” stands for long-term care. The company’s portfolio is invested about 50/50 in skilled nursing facilities and in senior housing properties. LTC has more than 180 investments spanning 27 states and 30 distinct operating partners. And importantly, LTC is a landlord, not a nursing home operator.
In the immediate short term, the Covid-19 crisis has created major risks to the sector. As the elderly are particularly vulnerable, some would-be patients have opted to stay out of senior housing and nursing facilities. It’s a legitimate problem, but again, it’s short term in nature.
Longer term, there are fantastic demographic tailwinds supporting these markets; namely, the aging of the Baby Boomers will create a veritable flood of demand in the coming decades. And these longer-term demographic trends are already set in stone.
Furthermore, LTC has the financial strength to ride this out. Its debt-to-EBITDA ratio is a modest 4.6, and the dividend accounts for only about 74% of funds from operations (FFO, an important REIT profitability metric). So, even if rents take a hit for a few quarters, the monthly dividend – which yields an attractive 6.5% – shouldn’t be at significant risk.
Main Street Capital
Market value: $1.7 billion
Dividend yield: 9.1%
Small-business America is colloquially called “Main Street” in the financial press. And of course, it goes without saying that Main Street has been hit particularly hard by the coronavirus lockdowns.
But if you believe in the resilience of the American economy – of the proverbial Main Street – then consider an investment in Main Street Capital (MAIN, $26.91).
Main Street Capital provides debt and equity capital to middle-market companies that aren’t quite big enough to access the capital markets on their own.
Importantly, Main Street maintains a conservative dividend policy. As a business development company (BDC), it is required to pay out 90% of its income as dividends to maintain its beneficial tax status. But because its earnings can be somewhat lumpy, MAIN keeps its regular monthly dividend relatively modest, then makes semiannual special dividends to top up their investors to the 90% threshold. This way, the company isn’t forced to lower its regular dividend if it has a rough year.
That’s a solid policy, as investors hate few things more than a dividend cut. And it’s coming in particularly handy this year. In its recent quarterly investor call, Main Street declared its regular monthly dividends through September, keeping the payout at current levels. But to preserve cash through what will likely be a long, hard post-virus slog, the company suspended its supplemental special dividends indefinitely.
That’s OK. The regular dividends alone add up to a dividend yield of 9.1%, which is among the best you can get from monthly dividend stocks. It’s certainly not too shabby in a world of near-zero bond yields. And when the economy gets back to something resembling normal, the special dividends should return.
Market value: $367.5 million
Dividend yield: 7.6%
Along the same lines, Gladstone Investment (GAIN, $11.12) is another monthly dividend stock worth considering.
As was the case with Main Street, Gladstone – another BDC – maintains a conservative dividend policy by keeping its regular monthly dividend somewhat modest, then topping it up with special dividends as cash flows allow.
Gladstone makes debt and equity investments primarily in mature, lower middle market companies with $20 million to $100 million in revenue, attractive fundamentals and strong management teams. The company’s policy is to generally keep about 75% of the portfolio in debt investments with the remaining 25% in equity investments.
Gladstone’s portfolio is divided across three main segments: manufacturing, business services/distribution and consumer products. Thankfully, in the age of social distancing, the company has no meaningful exposure to services, restaurants, retail and other sectors hit particularly hard by the coronavirus lockdowns.
Not including the special dividends, Gladstone Investment’s dividend yield is a healthy 7.6%. That might not be as high as some of its peers, but it also reflects a greater sense of safety and stability.
Although GAIN’s stock price is still well below its pre-COVID highs, it’s worth noting that the shares are trading at roughly the same prices they were last June.
Market value: 8.5 billion
Dividend yield: 5.1%
Some industries, such as communications, have proven to be a little more virus-proof than others. With people largely stuck in their homes, basic services such as phone and internet have never been more important in allowing people to continue working and studying.
Along those lines, Canadian telecom operator Shaw Communications (SJR, $16.50) is among the best monthly dividend stocks to put on your list. Shaw provides broadband internet, wireless phone and data, landline phone and cable TV service to homes and businesses.
Shaw’s stock price took a tumble in February and March, along with most other stocks, and it remains about 21% below its 52-week highs. The upside? At today’s prices, SJR yields just more than 5%.
With many stocks seeming to be melting up in April and May up just as quickly as they melted down in February and March, bargains like these are getting harder to find.
Shaw was not completely immune from the effects of COVID-19; the company had to temporarily lay off about 10% of its workforce in April, primarily in retail and sales roles. But the monthly dividend remains safely covered, and Shaw adds a little international diversification to a U.S.-heavy list.
Vanguard Intermediate-Term Treasury ETF
Net assets: $6.1 billion
SEC yield: 0.4%
Expenses: 0.05%, or $5 annually on a $10,000 investment
Moving on, we’re going to take a step back from monthly dividend stocks and cover a few reliable monthly dividend bond funds.
We’ll start with the Vanguard Intermediate-Term Treasury ETF (VGIT, $70.44), a low-cost Vanguard index fund that provides exposure to U.S. Treasury securities with maturities of three to 10 years.
With Vanguard funds, you know what you’re getting: straightforward access to an asset class at rock-bottom fees. VGIT’s expense ratio is just 0.05%, making it almost free to own.
You’re not going to get rich owning the Vanguard Intermediate-Term Treasury ETF. At current bond prices, the fund sports a yield of just 0.4%. But the experience of 2020 has shown us that yield isn’t everything. Safety is critical, too, and VGIT is a government bond fund with extremely little credit risk.
Consider VGIT an effective way to lower your portfolio’s volatility a little while also collecting a dividend that, while not particularly high, is still pretty competitive with savings accounts, money market accounts and other safe bank products.
* 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.
Pimco Intermediate Municipal Bond Active Exchange-Traded Fund
Net assets: $6.1 billion
SEC yield: 1.6%
Bonds are an important part of a diversified portfolio thanks to both their income potential and their ability to reduce portfolio volatility. But they’re not always the most tax-efficient vehicles. Bond interest generally is taxed as ordinary income, meaning you could be paying as much as 37% in federal income taxes on your payouts.
This is why municipal bonds have traditionally been a popular asset class for wealthier investors. Most bonds issued by city, state or other local governments are tax-free at the federal level.
This brings us to the Pimco Intermediate Municipal Bond Active Exchange-Traded Fund (MUNI, $54.36), an actively managed muni bond ETF run by one of the best-respected fixed-income firms in the word.
MUNI currently has around 200 underlying bond holdings with an average maturity of just 5.1 years. Its yield of 1.6% isn’t exceptionally high, but remember, it’s tax-free. If you’re in the 37% tax bracket, a 1.6% tax-free yield is equivalent to a 2.5% taxable yield.
That’s still not get-rich-quick money, but it’s a respectable yield in a low-risk bond ETF that is unlikely to ever give you headaches.
Vanguard Short-Term Corporate Bond ETF
Net assets: $24.6 billion
SEC yield: 2.1%
The most risk-free bonds are those issued by the U.S. government, as it is exceedingly difficult for the government to default. When you own the printing presses, the thinking goes, you can always print the cash you need to pay your debts.
Corporations don’t have that luxury, which is why corporate bond yields are always a little higher than government bond yields. But a diversified basket of high-quality corporate bonds is generally very low risk, and any small increase in risk is more than offset by the higher yield.
This brings us to the Vanguard Short-Term Corporate Bond ETF (VCSH, $80.86), another low-cost Vanguard index fund. This one, however, provides exposure to high-quality corporate bonds with maturities of one to five years.
The ETF yields a respectable 2.1% at current prices. Again, that’s not get-rich-quick money. But in this interest-rate environment, it’s not bad. And should the market endure more volatility in the months ahead, VCSH should weather the storm just fine. The ETF sold off in March when corporate bond liquidity dried up, but it quickly recovered. Now, Vanguard Short-Term Corporate Bond ETF sits just a couple percent below its 52-week highs.
iShares Preferred and Income Securities ETF
Net assets: $24.6 billion
SEC yield: 5.4%
Preferred stocks are an interesting hybrid between stocks and traditional fixed income.
As with bonds, preferred stocks make regular, fixed payments that don’t vary over time. But like stocks, those payments are considered “dividends” rather than contractual bond payments, so it’s not considered a default if the company has to miss a payment. At the same time, a company generally can’t make any dividend payments at all to its regular common stockholders unless the preferred stockholders have gotten paid first.
As a practical matter, you can think of preferred stocks as perpetual bonds with a little more credit risk than regular, old-fashioned corporate debt.
This brings us to the iShares Preferred and Income Securities ETF (PFF, $34.26), a diversified ETF investing in preferred stock.
Owning individual preferreds can be risky due to the lack of liquidity. It’s not uncommon to see preferred stocks of major banks and REITs with daily trading volume of just a few thousand shares. Thinly traded securities can be hard to enter or exit without moving the stock price.
That’s the beauty of PFF. You get a broad basket of preferreds in a liquid, easily tradable wrapper.
You also get monthly dividends. At current prices, those dividends translate into a respectable 5.4%.
BlackRock Municipal 2030 Target Term Trust
Market value: $1.6 billion
Distribution rate: 3.3%*
We mentioned tax-free muni bonds earlier, noting that their tax-free income makes them particularly attractive to wealthier, high-income investors.
Now, we’re going to look at a potentially more lucrative way to own them via a closed-end fund.
Closed-end funds (CEFs) are similar to ETFs, but with two critical differences. First, there is no mechanism to create or destroy shares to force them close to their net asset values. The number of shares is generally fixed. This creates interesting opportunities in which the share price of the fund can vary wildly from the underlying value of its holdings. If you’re patient, you can often buy them for considerable discounts.
The second difference is leverage. Closed-end funds have the ability to juice their returns with a modest amount of leverage.
With that said, let’s take a look at the BlackRock Municipal 2030 Target Term Trust (BTT, $22.50). BTT owns a diversified basket of muni bonds. The fund trades at a 7.6% discount to net asset value, meaning we’re getting a dollar’s worth of assets for about 92 cents. Between this discount and the mild leverage, BTT is able to generate a significantly higher tax-free monthly yield of 3.3%.
There’s one more wrinkle. BTT is designed to liquidate in the year 2030 at or near its net asset value of $25. So, if you hold BTT though its full term, you should enjoy capital gains of around $2.50 per share in addition to the steady stream of tax-free monthly income.
* Distributions can be a combination of dividends, interest income, realized capital gains and return of capital. Distribution rate is an annualized reflection of the most recent payout and is a standard measure for CEFs.