How To Earn Reliable Income With Monthly Dividend Stocks

Business Development Corporations (BDCs), Dividend Investing, Real Estate Investment Trusts (REITs)
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Income investors look for stocks that pay dividends. The steady and reliable income from quarterly dividend payments is attractive — especially when it’s not tied to movement in the stock market. But cash flow from a monthly dividend payment is even more attractive.

Maybe you already know how lucrative dividend investing can be. But let’s recap briefly. 

Dividend income — whether quarterly or monthly — can provide an additional income stream to supplement your current cash flow or help make retirement all the more luxurious. When dividend income is reinvested, growth begins to compound. And when that happens, words like “intergenerational wealth” can enter the conversation. 

Sounds great, doesn’t it?

The idea of earning reliable income is appealing for sure. But getting started can be tough. 

It’s the getting started part of the process that can prevent investors from unleashing the massive potential of monthly dividend payouts. Even if you know what to look for in a dividend stock, pulling the trigger on your own can be daunting.

In this article, we will demystify the process of selecting the right monthly dividend stocks for your investment portfolio. Then, we’ll walk through the most common types of monthly dividend stocks so you know where to look for them.

Getting Started With Monthly Dividend Stocks

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While most companies pay out their dividends on a quarterly basis, that type of income stream is less predictable and kind of, well … awkward. You don’t budget on a quarterly basis, do you? So quarterly dividends mean that you’ve got to spend time rearranging the quarterly payouts to fit into your monthly budget.

Monthly dividend stocks, however, have monthly payouts. This can be appealing for a variety of reasons. For one, dividend stocks that pay out monthly make budgeting easier, especially in retirement. 

Another attractive feature of monthly dividend stocks is that your dividend income will compound that much faster. When dividend payments are reinvested, shares of monthly dividend stocks accumulate more rapidly. Plus, when you reinvest monthly dividends, your investment has more time to generate even more dividend income.

Testing Monthly Dividends for Sustainability

Investors often buy a dividend stock because the dividend payout is attractive, but if the stock price falls by more than you’ve earned in dividend income, that’s not a great feeling. 

When buying stocks primarily for the dividend income, it’s always a good idea to run a few tests to determine whether the dividend will be sustainable.

Those tests might include taking a looking at:

  • The company: Understanding the industry, the company itself, and current events is important when assessing sustainability. Can the company realistically maintain its current profitability levels? 
  • Market volatility: Look at the competitive landscape as well as the supply chain. Are any disruptions on the horizon?
  • The payout ratio: You can calculate the payout ratio by dividing total dividends paid to shareholders by the net income of the company. A healthy and sustainable payout ratio is typically between 30% and 55%. 
  • The dividend yield: Dividend yield is the ratio of dividends per share to stock price per share. Yields between 2% and 6% are generally considered healthy.

And after you’ve performed your own due diligence, you can, of course, consult the experts. Do some digging to see which monthly dividend stocks are being recommended and why.

Where Monthly Dividend Stocks Are Commonly Found

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A long list of companies and funds are monthly dividend payers. But most companies will fall into just a few categories. 

Monthly dividend payers are most commonly found in business development companies and real estate investment trusts. 


Because the assets can be actively managed by portfolio managers and are structured in such a way that dividend payments are built in. 

By taking a look at these categories a bit closer, you can get a feel for which characteristics to consider as you build your own portfolio. 

Business Development Companies (BDCs)

The business model of a BDC resembles that of a private equity firm in the sense that profits from investments and loans are funneled to shareholders via reliable and significant dividends. 

Using debt and equity, BDCs invest in other companies and then hope to share in the success of those firms. BDCs have become appealing investment opportunities because they have a track record of sharing profits with investors in the form of monthly dividend payments. 

During 2020, many stocks significantly decreased or altogether discontinued dividend payouts. But many BDCs were able to fight against that trend. 


2020 recorded some historically low interest rates. Those rates enabled BDCs to easily and cost-effectively access capital during a time when many U.S. businesses were seeking to acquire debt or equity instruments to help them rebound after the many disruptions caused by the COVID-19 pandemic.

Gladstone Investment Corporation (NYSE:GAIN) and Prospect Capital (NASDAQ:PSEC), which both invest in middle-market companies, are examples of BDCs that were able to maintain monthly dividend payments in 2020.

Real Estate Investment Trusts (REITs)

REITs are legally required to payout 90% of their taxable income to shareholders as dividends. So as you can imagine, REITs typically pay above average dividends

When evaluating a REIT, look for good management teams that build strong balance sheets with adequate cash reserves. These reserves will enable the REIT to take advantage of opportunities as they arise and, in turn, will create value for shareholders.

You also want to consider in which sector the REIT primarily invests. Are there any macroeconomic trends that would serve as a tailwind for the sector?

For example, the U.S. Census Bureau estimates that the number of Americans aged 65 and older will double by the year 2050. This could serve as a tailwind for BDCs like LTC Properties (NYSE:LTC) that invest in properties that serve retirees, such as senior housing.

Another example may be the increase in e-commerce in the United States. This trend may influence a dividend investor to look for opportunities in industrial real estate. REITs like Stag Industrial, Inc. (NYSE:STAG) operate single-tenant properties for Amazon and other e-commerce companies that need warehouses or distribution centers.

Ready To Get Started?

Monthly income from dividend stocks could be contributing to your bottom line right now. That’s pretty exciting. With a strategic approach and a bit of due diligence, you can build a solid foundation that should allow you to feel confident about getting started.

When looking for monthly dividend payers to add to your portfolio, BDCs and REITs are good places to start. Just remember to seek out high-quality companies and consider the trends that may influence their performance.

It’s always a good time to generate extra cash to pay the bills, weather a financial crisis, or add a little luxury to your retirement plans.

We can help by showing you three stocks you can buy and hold forever as the backbone to your retirement. To learn about these three stocks and receive other dividend investing recommendations, subscribe to Investors Alley’s “Dividend Hunter” newsletter.