Part of my job as an advisor is helping my clients sort out their finances. But even though I do this professionally, I sometimes have a hard time sorting out my own finances because my expenses are out of sync with my income. My regular expenses tend to be monthly, whereas my income is mostly paid quarterly.
That’s always been a major source of frustration to me, and it is no doubt a major source of frustration to millions of retirees living off of their investments. Bonds generally pay interest just twice per year, and most companies pay dividends quarterly. But our home mortgages, car loans, and credit card bills are due monthly.
Well, I have a solution to this problem: monthly dividend stocks. Today, I’m going to share five monthly-paying dividend stocks that you can bank on to pay your monthly bills.
We should never buy a stock purely because its dividend is paid monthly. Dividend safety and growth are far more important considerations, and the following list has plenty of both.
LTC Properties Inc
I’ll start with LTC Properties Inc (LTC, Financial), one of my favorite plays on the aging of the Baby Boomers.
If you want to know what LTC does, just look at its name: “LTC” is short for “long-term care,” something that millions of Baby Boomers will be needing in the years ahead. 8,000 baby boomers turn 65 years old with every passing day, making this one of the most powerful trends in the world today.
LTC Properties invests in properties for providers or skilled nursing, assisted living, independent living and memory care. It also invests in mortgages secured by long-term care properties.
Roughly four-fifths of LTC’s portfolio is invested in properties, with the remainder in mortgages.
LTC currently yields 4.9% in dividend, which is very competitive among medical REITs. And importantly, if you want to make sure your monthly income continues to match your monthly expenses, LTC is a serial dividend raiser. LTC has hiked its dividend at a 5.5% annual clip over the past five years.
A monthly dividend payer with a track record of raising its dividends that also happens to be invested in one of the most powerful macro trends in the world… If you can think of a better stock to include in a retirement portfolio, let me know. I’d love to hear it.
Realty Income
No list of monthly dividend stocks can be complete without the company that calls itself “the monthly dividend company” on its own website: Blue-chip retail REIT Realty Income(O)
I write about Realty Income quite regularly, and there is a reason for that. I consider it one of the very best dividend stocks a retiree can own. It’s about as stable and conservative as a stock can be, while still offering regular dividend growth. Realty Income has paid 538 consecutive monthly dividends, and has raised its dividend for 70 consecutive quarters. Not every dividend hike is a large one, but the stock has managed 5% compound annualized dividend growth for 20 years and running. That’s well ahead of inflation.
How can I be so confident in Realty Income’s stability?
To start, Realty Income isn’t really a “company.” It’s a mostly passive landlord with a portfolio of more than 4,300 properties, most of which are high-quality, high-traffic retail sites. A Walgreens(WBA) or CVS (CVS) pharmacy is a “typical” property for Realty Income.
Furthermore, Realty Income’s properties are leased on a triple-net basis, meaning that the tenants are responsible for paying all maintenance, taxes and insurance.
Realty Income’s stock price has taken a beating in 2015, down nearly 20% from its recent fears due to investor concerns about rising bond yields. Use this as a buying opportunity in one of America’s finest divided payers.
American Realty Capital Properties Preferred Stock
Next up is actually not a common stock but a preferred stock. I’m recommending American Realty Capital Properties 6.7% Cumulative Preferred Shares (ARCPP, Financial).
This might take a little explaining. “Preferred stock” is actually more similar to a bond that to common stock. Shareholders have no voting rights and buy these primarily for income. And while dividend payments are not guaranteed in the sense that bond interest is, it takes priority over common stock dividends. Furthermore, some preferred stock—including this one—have provisions that make them cumulative. In other words, if the company skips a preferred dividend for any reason, they have to play “catch up” and pay the preferred stockholders their cumulative past dividends before they can offer a dividend to common shareholders.
So, why am I recommending the preferred shares of American Realty Capital and not its regular common stock?
There are a couple reasons. To start, American Realty Capital Properties common stock(ARCP) does not currently pay a dividend. It was suspended last year due to an accounting snafu. I expect that the dividend will be reinstated this year, but as of this writing ARCP does not pay a dividend.
Meanwhile, ARCPP pays a massive 6.7% coupon. At current prices, that amounts to a yield of almost 7%.
Will you get dividend growth here? No, you won’t. That coupon payment won’t change. But with a yield of almost 7%, I’m ok with that.
Prospect Capital
I may get hate mail for the next recommendation, but here me out. For a slightly riskier monthly payer, I recommend you consider shares of Prospect Capital (PSEC, Financial).
Earlier this week, I wrote that Prospect Capital is “the most hated stock on Wall Street.” As a value investor, that should get your blood pumping, but as a conservative income investor that might cause you to take a step back. Let me explain.
Prospect Capital is a business development company (“BDC”) that primarily makes loans to small and medium sized businesses. It essentially does what banks used to do back when banks actually lent money. Prospect lowered its risk profile last year, not wanting to “reach for yield,” so to speak. But less risk also meant less return, so Prospect had to cut its dividend.
I’m normally reluctant to recommend a company that has recently cut its dividend because, like cock roaches, there is never just one. But in Prospect’s case, the dividend cut made sense to me, and our risk is mitigated in my view by two things. Firstly, the stock is insanely cheap, trading at just 70% of book value. And secondly, Prospect Capital’s executives have been buying the stock on the open market hand over fist (see insider trading table at the bottom of this article for the full list).
At current prices, Prospect yields nearly 14%. Yes, this is a riskier play that, say, Realty Income. But I also expect it to be a fantastic performer over the next 6-12 months.
Main Street Capital
And finally, I’d like to recommend Main Street Capital (MAIN, Financial). Like Prospect Capital, Main Street is a business development company. Main Street provides debt and equity financing to small and medium sized businesses. Think of it as a publically-traded private equity company.
Main Street pays a modest monthly dividend of $0.175 per month, but twice per year it also generally pays a larger dividend based on its operating results. This allows Main Street to keep its base dividend stable, which is exactly what you want with a stock you’re using to fund your monthly expenses. Based on its regular dividend, Main Street yields about 6.6% at current prices. But including the irregular dividends gets you to a yield of about 8.4%. Not too shabby.
Main Street had to cut its dividend during the pits of the financial crisis. But it has been growing it steadily since 2011.
Charles Lewis Sizemore, CFA, is chief investment officer of the investment firm Sizemore Capital Management and the author of the Sizemore Insights blog. As of this writing, he was long ARCP, LTC, O and PSEC.
