7 Highest Paying Monthly Dividend Stocks

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How to Find the Highest-Paying Monthly Dividend Stocks that Keep Paying

You know I love those dividend stocks and the only thing better than collecting that cash flow is doing it EVERY SINGLE MONTH!

Now 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 year 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.

Ok, so you can see it’s a touchy subject with me. I hate these dividend yield traps, the stocks that promise a double-digit yield and then lose your money…because it doesn’t have to be that way. There are some great monthly dividend stocks out there that not only put that cash in your pocket every month but also give you some capital returns on a higher stock price.

So what I want to do with this video is show you those best monthly dividend stocks, the highest paying that will not only keep up that dividend payment but not stress you out over the stock price. We’ll look at my 7 favorite, seven dividend stocks I hold in my own portfolio.

We’re also going to talk about some of the different types of monthly dividend stocks, how to find the best, and some risks that could wipe out your portfolio so make sure you stick around for that.

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Dangers in Monthly Dividend Stocks

Now you already know I’m not a fan of those closed-end funds. Not only do they tend to lose your money but the fees are just ridiculous. Many of these are charging expense ratios of 2% and higher and the reason is another of the hidden traps in these funds.

To get those 12% and higher dividend yields, these funds use an insane amount of leverage. So they’ll invest in stocks paying maybe 6% yields but the fund will borrow twice as much as its assets to invest. For example, a $100 million fund might borrow another $100 million to invest $200 million in those 6% yielding stocks to get $12 million in dividends which would be that 12% on the actual fund assets.

The problem here is that one, they pay interest on that borrowed money and pass it down to investors through expenses. Also though, and this is the big problem with investing on margin, anytime the market falls, those investments take an even bigger tumble and the fund loses more money.

So, moral of the story here. Make sure you know what you’re investing in. If it’s a fund, is it an ETF, an exchange traded fund or a closed-end fund – and 99% of the time, I would avoid those closed-end monthly dividend payers.

I do like the monthly dividend ETFs but we’ll do a separate video on that because today I just want to focus on those seven monthly dividend stocks. But make sure you tap that subscribe button so you don’t miss the dividend funds video.

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How to Invest in Monthly Dividend Stocks

Now 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 for our seven monthly dividend stocks portfolio, not only did I look for the highest paying stocks but I also wanted to create a portfolio that was diversified across sectors and business type.

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The Best Monthly Dividend-Paying Stocks I Own

AGNC Investment Corporation, ticker AGNC, is our mortgage REIT pick with an 10.7% dividend yield and a good bet in the mREIT theme.

AGNC holds a $103 billion investment portfolio with $99 billion of that in Agency mortgage backed securities. Dividends have come down over the past few month on that crash in rates, which you’d expect in an mREIT. As long-term rates comes down, the company is collecting less on its mortgage investments.

Book value has been ugly for all the mortgage REITs because of the interest rate picture and it’s fallen to $17.52 for AGNC. That means the shares are trading well under their book value which is a pretty good place in terms of value.

One bright spot is that the net interest spread, that’s the difference between the interest rates on investments minus those short-term rates on which the company borrows, that spread jumped in the third quarter so could be signaling better profitability ahead.

Analysts have a low target at $13 per share and a high around $16.50 each over the next year so potentially some upside return besides the dividend if the interest rate spread stays higher.

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This next one is a smaller company but a strong business, Gladstone Investment Corporation, ticker GAIN, and its 8.4% dividend yield.

Gladstone is a business development corporation, a BDC, for what’s called middle-market companies. These are U.S. companies with earnings in the range of $3 to $20 million, so not quite big enough to list on the market but still big enough to need more credit and funding than can be provided by a traditional bank.

And why I like GAIN here is because it takes a higher equity share than most other BDCs. Gladstone’s target investment is 25% equity and 75% debt versus a traditional BDC that will look for less than 10% equity in the companies it works with. That higher equity ownership might mean higher risk but it’s also going to mean higher returns on these investments.

And we see that in GAIN’s history of return on equity which is well above the industry average. The five-year average ROE of 17% is over three-times the median ROE for the BDC group and even though near-term return has come down, it’s still well above the average for the group.

Gladstone’s current portfolio is spread across 28 companies in 14 industries so a level of diversification there that should help it continue those returns even in a sluggish economy. Dividends have consistently stayed around $0.07 per share with some special payments of $0.09 a share distributed regularly.

Our next monthly dividend stock is a long-time favorite, Shaw Communications, ticker SJR, a Canadian telecom giant paying a 4.9% yield.

Now Shaw has historically been a wireline business but the acquisition of Wind Mobile in 2016 is starting to come through with some real growth and making wireless the company’s biggest profit center. The company is investing in network improvements with deployment of 700 and 600 MHz spectrums it acquired in recent auctions and really becoming a player in the wireless market.

Shaw has $130 million on the balance sheet and no debt maturities until 2023 so definitely the financial strength we’re looking for and the business isn’t something that’s going to take a big hit in the shelter-in-place environment so first and second quarter earnings might actually be pretty decent. Dividends have stayed fairly consistent even through the lockdowns and as a telecom company, it shouldn’t have a problem maintaining the payout.

We’ve got price targets from seven analysts here with targets from $18.50 on the low end, just above where it’s trading now, to 32% higher at $23.67 per share over the next year so a great dividend and that upside return potential.

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Gladstone Commercial, ticker GOOD, is a diversified REIT specializing in industrial and office property paying an 8.2% dividend yield.

The company owns more than 15 million square feet at 122 properties in 28 states across the U.S. Leases are spread across 106 tenants in 19 industries so extremely diversified.

Occupancy has held at 96.6% and the average lease term of 7.5 years means even a more severe recession should support rent. And that stability supports one of the most stable monthly dividends you’ll find at $0.125 per share every single month.

Just one price target here of $22 per share, about 16% over the current stock price and a great long-term investment that will just keep paying.

Even as energy has remained weak this year, I wanted to include Pembina Pipeline, ticker PBA and its 7.4% monthly dividend.

Pembina is a midstream oil company which means it makes money on transporting oil and gas through pipelines as well as gas processing and some marketing services so overall a diversified business model. The company has had to put some projects on hold to protect cash flow but has maintained its BBB-credit rating and has $2.5 billion in available liquidity, so there’s no real solvency risks here.

The company has maintained earnings growth through prior crises and has actually been able to make some opportunistic acquisitions like the recent purchase of Kinder Morgan assets.

Pembina has historically kept its monthly dividend around $0.15 per share and then just distributes any free cash through a special dividend like the $0.21 per share payment in May.

Analyst price targets range from $22 a share on the low end to as high as $33 per share over the next year.

Main Street Capital, ticker MAIN, is another favorite among dividend investors for its 7.7% yield.

Main Street is another business development corporation, specializing in loans and equity investment into mid-sized businesses. The company has regularly increased its dividend, now at $0.205 per share along with special dividends of over $4 per share distributed since 2013.

The company had 182 portfolio investments as of the first quarter with the largest representing just 3% of total fair value so a hit to any of these investments isn’t going to hurt the shares much.

One thing you always want to watch for with BDC stocks is to compare the effective yield on the company’s investments with the dividend yield. In this case, Main Street earns a weighted average yield of 9.7% on its loan investments and pays out 7.7% in monthly dividends. The average yield above the committed dividend yield is a must for dividend sustainability.

Realty Income, ticker O, is easily the most popular REIT and maybe one of the most popular of all stocks with its 4.9% dividend paid on a monthly basis.

Realty Income has 50 years of operating history and owns nearly 6,000 properties in 49 states, Puerto Rico and the United Kingdom.

Even though 83% of rental revenue is from retail, I’m OK with this one because its diversified across some of the safer types of retail property like convenience, dollar stores, drug and grocery. Lease terms average nine years and occupancy has never been below 96% for the properties. Rent growth isn’t terrifically strong at around 1% annualized but it’s consistent and supports the dividend.

That dividend isn’t the highest among REITs but investors love the monthly payouts and the company has reported 88 consecutive quarterly increases. The 4.5% annualized dividend growth has beaten the 2.9% average for REITs so expect this one to keep paying.

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Don't miss our next video on the best monthly dividend funds. I love these monthly dividend stocks but you need the diversification from ETFs to smooth out the roller-coaster in stocks and make sure you keep collecting those checks. These funds are a must-add to your portfolio!

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