Dividends are great, especially if you need income to help cover your current living expenses. But, the way dividends are paid isn’t always convenient. Most dividend stocks only dish out payments once per quarter. You most likely, however, pay your bills in a monthly basis. It would certainly be nice if this money was coming in at the same cadence it was going out.
Well, good news! While relatively uncommon, there are some stocks that pay their dividends on a monthly rather than on a quarterly schedule. Here’s a closer look at three of the better ones you may want to consider adding to your portfolio if you have such a need.
Realty Income
If you’re looking for a stock that pays a recurring monthly dividend, it makes sense to own a stake in a company that charges its customers on a recurring monthly basis.
Enter Realty Income (O). It’s a real estate investment trust, or REIT for short. That just means it owns rental real estate.
There are all sorts of REITs, ranging from outfits that own malls to apartment buildings to hotels to office space. Realty Income’s focus is retailing. It owns 15,450 different retail properties, 98.8% of which are currently rented out to more than 1,500 different consumer-facing companies. It top tenants right now include Dollar General, Walgreens, and Dollar Tree, but names like Walmart, 7-Eleven, and FedEx are also key renters.
On the surface it’s a concerning specialty to would-be shareholders. The retailing industry is supposedly fighting for its life, defending itself from the advent of online shopping.
Rumors of retail’s death, however, have been greatly exaggerated. Some key players of this market are always going stick around in brick-and-mortar form, with many of them being Realty Income’s tenants.
That’s what the numbers suggest anyway. Not only is almost the entirety of this REIT’s portfolio currently leased despite economic turbulence, it’s managed to pay a dividend every month since it was founded in 1969. Indeed, it’s not only been able to raise its full-year dividend payouts every year for the past 30 years, but has upped its monthly payment every three months for the past 107 quarters. Not bad.
Newcomers will be stepping into Realty Income while its forward-looking yield is just a little over 5.0%.
Stag Industrial
Like Realty Income, Stag Industrial (STAG 0.48%) is a real estate investment trust. Its forward-looking yield of 3.7% is also in the same ballpark as Realty Income’s, even if it’s measurably lower. It is different from Realty Income, however, one key way. Whereas Realty Income’s focus is on retail properties, Stag Industrial -- just as the name suggests -- largely owns industrial rental real estate.
OK, the term “industrial” could be a little misleading here. The company doesn’t own a bunch of factories or production facilities. The bulk of its business and its tenants are consumer-oriented. Amazon is its biggest tenant, for instance, mostly renting warehouse space. The Coca-Cola Company is another major renter, along with FedEx. Most of its tenants use their space rented from Stag Industrial for logistics, storage, delivery, and warehousing purposes.
Whatever the case, it works. As of the midpoint of this year more than 97% of its 114.1 million worth of square feet for rent was rented. And at strong prices too. This REIT is generating plenty of income to cover its ever-growing dividend payments. Although sometimes at a painfully slow pace, Stag’s raised its dividend payment every year since 2011. This year should be no exception.
With all of that being said, there’s another great reason to consider stepping into a stake in Stag Industrial… a reason that’s rarely touted. That is, while REITs are well-suited for paying dividends, Stag also aims to drive meaningful price appreciation of its shares. Much of this growth will come from sales of previously-purchased properties that have been developed, improved, or grown in value, or sometimes no longer fit within its portfolio.
Oh, the strategy doesn’t always work. It works more than it doesn’t though. Stag shares are up nearly 100% for the past decade, thanks to consistent (albeit volatile) long-term progress.
AGNC Investment
Finally, add AGNC Investment (AGNC -0.32%) to your list of tickers that pay a monthly dividend.
Yep, it’s another real estate investment trust, although still distinctly different than Stag or Realty Income. AGNC Investment is a mortgage REIT, meaning it buys bundles of mortgage loans -- which essentially trade like bonds -- facilitated by government agencies like the Federal National Mortgage Association (FNMA 9.45%) (Fannie Mae), or the Government National Mortgage Association (Ginnie Mae). The quirk? It borrows money to make these purchases, paying shareholders most of the difference between what it’s got coming in every month and what’s going out.
It sounds crazy at first… paying interest on borrowed money to earn interest on, well, borrowed money. Surprisingly enough though, the model usually works. That’s because the interest costs on the short-term funds borrowed to buy bundles of long-term loans are typically lower than the interest earned on the bundled loans themselves. These are also highly-leveraged purchases, so even the relatively small difference between AGNC’s borrowing costs and its return on ownership of the mortgages it owns are effectively magnified.
Usually, but not always.
As of the middle of 2022 long-term interest rates fell below short-term interest rates. You likely heard this rare phenomenon referred to as an inverted yield curve. It often happens in anticipation of economic or market weakness, marked by investors filing out of stocks and plowing into anything seemingly safer. Mortgage REITs like AGNC Investment can typically shrug it off if the yield curve doesn’t remain inverted for too long. The curve remained inverted for a couple of years though, wreaking havoc on AGNC’s business model in the meantime. That’s the chief reason this stock’s been such a poor performer since then.
The yield curve is no longer inverted though, and if the impending rate cuts work as expected, the yield curve will remain uninverted as demand for mortgage loans is rekindled. That’s exactly what AGNC and its shareholders want to see.
AGNC Investment’s projected dividend yield stands at an incredible 14% right now, but don’t get too excited. That could easily change as the economic backdrop evolves. That’s why this REIT shouldn’t be your first or only monthly dividend stock.
If you’ve got room for a little uncertainty and inconsistency among your dividend-paying holdings though, this above-average yield may well be worth the risk.
