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How To Identify The Best Monthly Dividend Stocks and Four To Consider



If you’re looking for a path to true financial independence, monthly dividend income could be your answer. The trouble is, most dividend stocks pay on a quarterly cycle. While you might enjoy the big influx of cash every quarter, stretching that income to last three months can be challenging. Fortunately, this is a challenge you can overcome with some investing know-how. First, you should feel comfortable identifying the best monthly dividend stocks among your options. And second, you should understand how to build a dividend ladder for ongoing monthly income.

If you’re ready to add these dividend investing skills to your toolbox, read on.

Criteria For Best Monthly Dividend Stocks

There are roughly 50 publicly traded stocks that pay monthly dividends. Many of them are REITs, also known as real estate investment trusts (REITs). REITs own and manage income-producing real estate or related assets like mortgages. REITs can diversify across sectors, or specialize in, say, shopping malls, commercial buildings, residential complexes, timberland or farmland. Whether you’re looking at REITs or traditional stocks, reliable dividend-payers share four characteristics: a solid track record of shareholder payments, strong and growing cash flow and a manageable debt level.

With inflation at a 40-year high running at more than 7%, dividend stocks offer one of the best ways to beat inflation and generate a dependable income stream. Click here to download “Five Dividend Stocks To Beat Inflation,” a special report from Forbes’ dividend expert, John Dobosz.

1. Solid dividend track record

History does not predict the future, especially in investing. Still, a long track record of steadily rising dividends tells you two important things about a potential investment. You know the company’s leadership team is committed to rich shareholder payments. You also know the company has generated enough cash to fund those payments.


REITs, by law, must distribute at least 90% of their taxable income to shareholders. So these entities don’t have the option to cancel their dividend, and they have limited ability to reduce it. However, they still must manage their profits and cash flow responsibly. That’s why a stable dividend payout with periodic increases is a good sign—it shows discipline and a predictable business model.

2. Consistent, increasing cash flow

Consistent and increasing cash flow is a must for long-term dividend payers. Without cash, a company would have to fund its dividend with borrowings or stock issuance. Either option might be a short-term solution, but neither is sustainable.

Two metrics to review are free cash flow for stocks and funds from operations for REITs. Some analysts prefer an adjusted funds from operations metric, which subtracts capital costs associated with property maintenance.

3. Reasonable payout ratio

The dividend payout ratio is a measure of how sustainable a company’s dividend is. The ratio is calculated as: dividend per share divided by earnings per share. Many experts prefer this ratio to be 80% or less for stocks.

That threshold doesn’t apply to REITs, however. There are two reasons why. First, REITs are required to distribute more than 80% of their income. Second, REITs often have high depreciation expenses. This is a non-cash line item, but it does reduce income. As a result, some REITs can tolerate much higher payout ratios—sometimes as high as 300%.

Also keep this in mind: A company’s payout ratio might rise temporarily due to a one-time event. If that event affects earnings but not cash flow, the change may not alter your decision-making. On the other hand, a steadily increasing payout ratio could be cause for concern.

4. Manageable debt

High debt balances increase a company’s risk of loan defaults and, worse, bankruptcy. Every company has a different tolerance for debt, which is why experts often evaluate debt relative to other values. An example is the debt-to-equity ratio, which divides total liabilities by shareholders equity. The ratio tells you how dependent the company is on debt to fund its operations.


Acceptable debt-to-equity ratios vary by industry. REITs, for example, tend to carry large debt balances. You might accept a debt-to-equity ratio of 3.5:1 for a REIT, but you’d prefer to see a lower ratio of 2:1 for a company that’s not in real estate.

Even at low levels, inflation destroys wealth, but at current rates it’s downright deadly. Defend yourself with dividend stocks that raise their payouts faster than inflation. Click here to download “Five Dividend Stocks to Beat Inflation,” a special report from Forbes’ dividend expert, John Dobosz.

A word on dividend yield

Dividend yield is the annual dividend payment divided by the share price. This is a measure of an investment’s income potential — something like the interest rate you’d earn on a cash deposit.

A higher yield means more income for each dollar you invest. More income sounds like a good thing, but that’s not always the case. It’s important to understand why one investment has a higher yield than its peers. It could be because the share price has recently dropped, which mathematically pushes the yield higher.

Also, your yield on purchased stock can change. If all goes well, the dividend rises while your cost stays the same. That translates to higher yields over time. You can use that trend to your advantage—by choosing dividend-payers with strong, long-term potential and holding onto them. A stock that doesn’t have a strong yield today could be very productive for you 10 years from now, relative to your original cost.

The takeaway? Yield is a consideration when buying dividend stocks, but it’s not the most important one. Focus on companies with good fundamentals and sustainable dividends first. You’re better off with stocks and REITs you can hold for the long-term, vs. a high yield that may not last.

How to Create a Dividend Ladder for Monthly Income

It’s risky to rely on income from just one company or industry. That’s why diversification is critical for your dividend portfolio. The big question is: Can you diversify your monthly income portfolio when there are so few monthly dividend stocks?


The answer is yes—if you know how to build a dividend ladder. Your ladder will use stocks that pay quarterly dividends on different cycles to deliver monthly income.

Here’s how this works. There are three quarterly dividend payment schedules possible:

  1. January, April, July and October. Human resource software company Automatic Data Processing (NASDAQ: ADP) pays dividends on this cycle.
  2. February, May, August and November. Consumer goods company Procter & Gamble (NYSE: PG) pays dividends in these months.
  3. March, June, September and December. Energy company ExxonMobil (NYSE: XOM) follows this payment schedule.

A dividend ladder designed for monthly income would combine stocks using all three schedules. Say you owned ADP, PG and XOM. ADP would deliver income in January, PG in February and XOM in March. Then the cycle starts over, so you have income in each month of the year.

Using a ladder, you don’t have to rely only on monthly dividend payers or be overly concentrated in REITs.

Examples of Best Monthly Dividend Stocks

Ready to start evaluating dividend stocks for your own portfolio? Here are four of the top monthly payers, which are all REITs: Realty Income (NYSE: O), Stag Industrial (NYSE: STAG), LTC Properties (NYSE: LTC), and Agree Realty (NYSE: ADC). Let’s look at each.

Realty Income

Realty Income owns single-unit, freestanding commercial properties, which it leases to global operators under long-term agreements. Importantly, these agreements are net leases, meaning the tenants pay all property expenses.

The portfolio is diversified across 79 industries and all 50 U.S. states, plus Puerto Rico, U.K. and Spain. The highest concentrations are in grocery stores, convenience stores and dollar stores.

Realty Income has increased its dividend annually for the last 28 years. The REIT’s payout ratio is high, well above 200%. That may sound shocking, but it has been sustainable thanks to the company’s solid cash flow. Realty maintains a balance sheet strong enough to support an investment-grade rating.


Realty Income currently yields more than 4.5%.

Stag Industrial

Stag owns and operates 563 single-tenant industrial properties in 41 U.S. states. The REIT has increased its dividend in each of the last four years. Over the last three years, the annualized dividend growth exceeds 10%.

Stag’s dividend payout ratio is about 110%, down from the over-200% payout ratios between 2017 and 2019. This REIT currently yields just under 4.5%.

LTC Properties

LTC Properties finances senior housing and skilled nursing facilities by way of mortgage debt, sale-leaseback agreements, construction financing, preferred equity and bridge lending.

LTC has paid dividend in every year since 2002. Its last dividend increase was in 2016. This REIT’s payout ratio is just under 100% and the yield is a strong 5.8%.

Agree Realty

Agree owns and operates more than 1,700 commercial properties. The company’s focus is on net lease agreements with leading retailers and service providers, such as Target, Costco, O’Reilly Auto Parts and Planet Fitness.

Agree has paid dividends regularly since 1994 and has increased its monthly dividend four times since 2021. The dividend payout ratio is about 150%, which is higher than its five-year average of 125%. Agree’s dividend yield is just above 4%.


Building your monthly income stream

The beauty of dividend investing is that you can grow your position slowly, with the long-term goal of producing enough income to cover your living expenses.

To do that, you’d build a diversified dividend ladder—and set your dividends to reinvest automatically. Note that this works best in a retirement account where you won’t incur taxes on the income. Then, keep adding to your positions monthly. Between your new invested cash and what you earn from dividends, you’ll see momentum in your share count relatively quickly.

Stick with that plan for ten years or more. Your monthly income stream will grow, and you’ll be on your way to achieving true financial independence.

Five Top Dividend Stocks to Beat Inflation

Many investors may not realize that since 1930, dividends have provided 40% of the stock markets total returns. And what is even more less known is its outsized impact is even more acute during inflationary years, an impressive 54% of shareholder gains. If you’re looking to add high quality dividend stocks to hedge against inflation, Forbes’ investment team has found 5 companies with strong fundamentals to keep growing when prices are surging.

Source: Fox Business


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