Use this list of high-yield monthly dividend stocks to put cash in your pocket every single month!
Our portfolio of monthly dividend stocks last year produced an average 10.7% dividend yield and a total return of 8%…compared to a loss of 10% on stocks in the S&P 500 over the period. So not only did you get that high dividend yield and collect monthly cash flow but the portfolio actually protected your money from the worst of the selloff.
I’ll link to last year’s monthly dividend stocks list in this video but for this list, I’m highlighting a totally new group, one with an average 10.8% dividend yield and one stock as high as sixteen-percent! I’ll be ranking our monthly dividend stock list from lowest to highest paying but stick around because I’ll also show you how to analyze dividend stocks and reveal the risks in these you need to know.
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List of the Best Monthly Dividend Stocks to Buy Now
First on our list of highest paying monthly stocks is actually the lowest yield of the group, Gladstone Capital, ticker GLAD, with a 7.3% dividend.
Even that is still more than four times the dividend yield you get from the overall market and shares of Gladstone have added an additional 3% annual price return over the last five years.
Gladstone is a business development corporation, something we’ll talk more about later. The average portfolio yield for Gladstone since 2012 and rates were much higher before 2019. The average yield on loans was over 11.6% in the five years through 2019 versus just 10.5% this year. As interest rates rise over the next couple of years, you’ll see that average portfolio yield rise as well. As long as the economy doesn’t fall apart and loan defaults don’t jump, these BDCs are primed to book higher cash flow and pay out higher yields to investors.
In fact, we’ve already seen BDCs do well even against the market crash this year. Shares of Gladstone are flat since January versus a drop of nearly 20% on the market and have continued to pay that dividend.
But if you are over-exposing a portfolio to one type of company, especially BDCs, then you want to pay special attention to each company’s sources of capital and business. For example, every BDC will show you the industries in which it loans and the type of loans it’s making. Gladstone is well diversified across 17 industries so a major event in any one group isn’t going to materially affect the company.
Next up is Prospect Capital, ticker PSEC, another BDC with a 9.6% dividend yield though not quite the price appreciation we saw with Gladstone.
Prospect was founded in 2004 and has over 16 years of dividends and performance. The company manages a $5.7 billion portfolio of 122 investments in companies across 39 industries and earns a 9.9% yield on its portfolio. That’s more than enough to cover the stock’s dividend yield this is another one I like on that rising rate environment.
BDCs make loans to small- and mid-size companies, those too big for your regional banks but still too small to get money from the capital markets. And that portfolio yield is the most important thing you want to watch for here. You’ll find this in any BDC’s financial statements called the Weighted Average Portfolio Yield, and it’s the average interest rate the company makes on its loans. You want to make sure that’s above the dividend yield. A portfolio yield above the dividend is not only a sign the company can keep paying that dividend but it’s also making enough that you’ll see the stock price grow as well.
Prospect’s portfolio yield is only slightly above its dividend yield but should head higher on rising rates but it would be something to watch. The company has a strong history of cash return to investors and In fact, Prospect has returned a cumulative $18.60 per share in dividends for more than $3.3 billion since the 2004 IPO and that payout keeps climbing.
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Investing Risks in Monthly Dividend Stocks
We’ve still got five more monthly dividend stocks to highlight and I know picking stocks is the fun part of the video but just as important is, you need to understand the risks in monthly dividend payers.
You see while most dividend stocks pay every three months, there are actually hundreds of funds, ETFs and individual stocks that pay out monthly…but a lot of them are going to be the worst investment you can make.
One problem is a lot of these highest paying monthly dividend stocks are closed-end funds. They draw investors in with dividend yields of twelve- and 15% and higher but if you look at the share price, you’re actually losing money. Look at these two monthly dividend payers, down 60% over the last few years and it wasn’t just the coronavirus crash. These stocks and a lot of those high-yield funds see a constant loss of stock price.
And while this is happening, the dividend is cut as well. So you might start off with a $20 share price and a $2.40 dividend, which is 12%, but then the shares fall by 20% over the year to $16 a share. The dividend is cut to $1.92 which is still 12% of that new, lower price so the fund is still attracting new investors but you’re assed out because not only do you have a loss if you ever go to sell but you’re also collecting lower dividends than you expected.
Now I wouldn’t say don’t invest in all closed-end funds outright but most of them have this problem of destroying shareholder value so with any high-yield dividend stock, just take a second to check out that price chart to make sure it hasn’t destroyed too much value.
One more risk in high-dividend investing and we’ll get back to our list and here, watch out for investing in just a few types of businesses.
Picking the dividend stocks we’ll talk about, I had to be careful because most of the monthly-payers are going to be in two business types, real estate investment trusts or REITs and Business Development Corporations or BDCs.
REITs are just a special company type that owns property or mortgages. BDCs lend money to small- and medium-sized businesses as well as take an equity stake, so they’re kind of like a bank and a private equity investor for small business.
Both of these business types get a special tax break if they distribute the majority of profits as dividends to investors so you get investments with amazing yields but there are some risks here that most investors don’t really understand.
Both of these are highly-affected by interest rate changes. Real estate is highly-leveraged with debt so interest expense is a big part of the business. The mortgage REITs borrow on short-term rates and invest in long-term mortgages, so that’s obviously directly tied to rates, and the BDCs are basically banks so again, directly tied to interest rates.
The problem with this, other than falling rates just make it harder for these types of businesses to make money, is that if you’re out there looking for monthly dividend stocks and you just jump into a handful…you’re likely to end up with a portfolio that’s really concentrated in BDCs and REITs. For example, of the 68 monthly dividend stocks and funds I follow, nearly half, 29 of them are one of these two business models.
And if half of your portfolio is in just two types of businesses, then when those interest rate changes do come along or some other change that affects these two, your portfolio is going to be in trouble. Like you’re eatin’ ramen noodles the rest of your life kind of trouble.
So within our list of monthly dividend stocks, I’ve added some with a little lower yield but that will give you the diversification you need for a cash safe portfolio.
High-Yield Monthly Dividend Stocks to Buy
Back to our dividend list and I wanted to add Cross Timbers Royalty, ticker CRT, for its 7.6% dividend yield and the diversification it brings.
Cross Timbers is a royalty trust formed in 1991 which means it has a royalty revenue rights to its properties in Texas, Oklahoma and New Mexico but doesn’t have to do anything. The properties, which confusingly enough aren’t timber woodland but oil & gas properties, are operated by XTO Energy which pays all costs and just passes the royalty share on to Cross Timbers to disperse to shareholders.
The company has a solid history of dividend returns and should continue to produce that return, especially with oil prices where they are now.
Next on our dividend stocks list, PennantPark Floating Rate Capital, ticker PFLT, yields a 10% dividend with an important upside.
Pennant is another BDC but specializes in floating rate loans, something that could help it increase the yield as interest rates rise. Eighty-seven percent of the portfolio is in secured debt on first liens with another 13% in equity investment to give it even more upside growth.
The company’s current portfolio of loans to 115 companies is diversified across more than 30 industries with an average loan size around $10 million.
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What to Watch for Investing in Monthly Dividend Stocks
We’ve still got that last monthly dividend stock with a 16% yield and two more I’m adding to the portfolio but I want to give you three points to watch for when analyzing monthly dividend payers. Those of you in the Nation know, I’m not about to just drop a list of stock picks in your lap. I want you to know how to look for these stocks, what to watch so YOU become a better investor.
Here I’m looking for companies with a strong dividend yield but not at the risk of cash flow problems. You’ll see in a lot of high yield stocks, the company is keeping nothing back in cash flow so that liquidity is a constant threat. Instead, I want companies that are able to keep up that dividend but also reinvesting into the business for growth.
Analyzing a company’s cash flow can be as simple as a quick look at the Cash Flow statement in the financials. This Operating Cash Flow is the cash generated from the core business operations, so a great measure of how much cash the company can produce and the trend. You can also look at this Free Cash Flow at the bottom which is just the Operating Cash Flow minus capital expenditures or what the company needs to reinvest into the business. A trend upwards in both of these is a great sign the company can continue to pay and grow its dividend.
I’m generally going to be looking for larger companies, ones with a market cap over $3.5 billion though I’ll break this rule on occasion if the stock meets the other two criteria. Basically, I want to make sure the companies have that financial power and size to survive the recession no matter what, companies that are going to have that access to credit if they need it.
You find the market cap of a company on any statistics page or the main ticker page and again, this is just the total market value of all shares outstanding.
Finally, I’m also going to check out the dividend history of the stock. I can go here to Yahoo Finance under Historical Data in the menu, and change it to show dividends to see that consistency and growth in the payouts.
Of course, I’m also looking for companies with a yield of 6% or higher and that pay out on a monthly basis. The overall market averages around a 2% yield so these stocks are paying more than three times the market average.
Safe Monthly Dividend Stocks to Add to Your Portfolio
We’ve still got our highest dividend yield stock to reveal but I want to top our list off with two monthly dividend stocks that didn’t quite make the cut for highest yield but I think add some great diversification and total returns to the portfolio.
First is one we’ve talked about on the channel before, STAG Industrial, ticker STAG, with its 4.5% dividend yield.
Now that 4.5% yield may seem like a letdown after 16% Armour but Stag has also produced a 4.8% annual return on top of the dividend over the last five years and it’s in one of my favorite property types right now. STAG owns 450 industrial and warehouse properties across 38 states for a total 91 million square feet.
And while a lot of those other property types like office and retail have struggled during the pandemic, the warehouse market was red hot! The rise of ecommerce and online shopping has destroyed the retail property market but all those online orders need to be stored somewhere and that’s meant a boom in warehouse demand. In fact, 43% of the STAG’s property portfolio is involved in ecommerce activity.
So with STAG, you’re not only getting a dividend yield that’s still almost three-times the market average but exposure to a part of the real estate market that should drive returns for decades.
And if you thought adding STAG to a list of high yield stocks was questionable, then you’ll think I’ve gone totally batshit crazy adding Gladstone Land, ticker LAND, with its paltry 2.3% yield.
But there are a lot of reasons to add LAND to your portfolio besides the dividend yield. The shares have produced a 16% annual price return over the last five years, making it actually one of the highest total returns on the list. Also, the stock is down 32% from its recent peak so the potential for some real value here.
LAND is a farmland real estate trust with 164 farms and 113,000 total acres across 15 states. Acreage is 100% leased and, besides industrial, this is another of my favorite property types.
Farmable land per capita has halved in the last sixty years even as global food demand surges. Farmland values continue to rise and this is an uncorrelated asset with stocks. That means it’s going to do a great job of smoothing out the roller-coaster ride of stock prices when the market crashes.
Our highest dividend yield on the list, Armour Residential REIT, ticker ARR, pays a 16% yield but this is one you might want to watch before buying.
That 16% dividend yield is tempting but the environment for mortgage REITs is tough right now so the weakness in the share price may not be over. The company borrows short-term to invest in long-term mortgages and has a portfolio of $8.1 billion in residential loans and US Treasuries.
Against higher interest rates that should mean stronger returns, mortgage demand has dropped so all the mortgage REITs are down hard this year. Still though, it’s a dividend yield you don’t want to miss so I’d watch this one and consider picking up shares later this year if the economy improves.
You shouldn't invest in the highest-paying monthly dividend stocks for their yield alone but with a little research, you can find the ones that will not only put cash in your pocket consistently but will also grow your portfolio. Understand the risks in monthly dividend payers and put together a list of stocks you can count on to pay the bills!
Don't Miss the Rest of the Monthly Dividend Stock Series!