Ever since the great recession hit, low interest rates have forced many retired Americans who live off their savings to seek new sources for the income they need each month. Bank CDs and other safe investments no longer pay anywhere near enough interest to help them make ends meet, which has led many investors to consider dividend-paying stocks. Yet with most dividend stocks making payments only once every three months, it can be a challenge to coordinate your investments with when you actually need cash.
Some companies, though, have realized the value of delivering income to shareholders on a more frequent basis. Investors can find several promising industries in which many companies make dividend payments monthly, which makes things easier from a budgeting standpoint. Let's take a look at some stocks that provide monthly income to their shareholders.
1. Oil and Gas Companies
Many players in the oil and gas industry pay high dividend yields, and a number have jumped onto the monthly dividend bandwagon. Vanguard Natural Resources (VNR), for instance, has oil and gas properties across the central U.S., ranging from the oil-rich Bakken region of North Dakota all the way south to the Permian Basin in Texas and oil and gas fields in Mississippi. Unlike many other energy players, Vanguard has emphasized the natural gas side of its business, and rebounding gas prices from a slump two years ago has helped support Vanguard's 8 percent annual dividend yield, coming in payments of 21 cents per share each month.
Canada's Enerplus (ERF) is another energy company with strong prospects and healthy income. With exposure to the Bakken region as well as the oil and gas fields in the Canadian provinces of Alberta and Saskatchewan, Enerplus has balanced its exposure between crude oil and natural gas to make the most of price moves in both products. In addition, assets in the Marcellus region of the eastern U.S. also add growth potential for Enerplus, which could lead to even higher payouts than its current yield of 4.1 percent.
2. Business Development Companies
Business development companies are specialized investment vehicles that provide financing to privately held smaller businesses. One of the benefits of BDCs is that they generally don't have to pay corporate-level tax, instead leaving shareholders on the hook for paying tax on the taxable income that they generate. The beneficial thing for shareholders, though, is that BDCs are required by law to pay out the bulk of their earnings, leading to high yields. Not all BDCs pay dividends monthly, but some do, and their high yields make those payouts substantial.
Prospect Capital (PSEC) invests in middle-market companies, providing debt and equity financing to help foster their growth. One of the BDC's recently concluded investments was in airport retail company AirMall, in which Prospect first invested four years ago and which paid a return of more than 16 percent annually for shareholders. With investments ranging from energy and financial companies to producers of food and other consumer goods, Prospect has a yield of almost 13 percent, and it has announced its schedule of monthly dividend payments through the rest of this year.
Main Street Capital (MAIN) doesn't have as high a yield at 6.3 percent, but the BDC also makes monthly dividend payments to shareholders. Moreover, with supplemental dividends twice a year, those who rely on income effectively get bonus payments from time to time that can help with unexpected expenses. Focusing on smaller businesses, Main Street earns high yields, and although default risk is higher with small companies, the generally strong conditions in the economy have supported that part of the market recently.
3. Real Estate Investment Trusts
Like BDCs, real estate investment trusts are a creation of the tax code, with these real-estate holding companies not having to pay corporate tax if they pay out most of their income to shareholders. Moreover, because many REITs receive monthly income in the form of rents from tenants, it's only natural for some of them to pay their shareholders in the same manner.
Realty Income (O) has touted its monthly payouts for a long time, even registering a trademark as "the monthly dividend company." For 45 years, Realty Income has paid monthly dividends, with distributions totaling more than $3 billion over that time. With more than 4,200 properties in its portfolio, Realty Income generates a nearly 5 percent annual yield. Even more important, Realty Income has a strong track record of raising its dividend payouts, with 76 increases over the past two decades.
But Realty Income isn't the only monthly dividend payer in the REIT world. Armour Residential (ARR) focuses on mortgage-backed securities, and it pays shareholders a nickel per share each month for a current yield of more than 14 percent. Shares of mortgage REITs have been under fire lately because of concerns about possible increases in interest rates in the near future, and Armour has cut its dividend on multiple occasions in the past two years. Nevertheless, with shares already having fallen from their peak levels in recent years, some see Armour as a value proposition if interest rates don't rise as quickly as many fear.
Be Smart About Dividends
Just because a stock pays a monthly dividend doesn't mean it's automatically a good stock. You still have to decide whether a company has the growth potential to be a promising investment. For good companies, though, monthly dividends make things even easier for income investors looking for reliable cash flow.
Need Monthly Income? Some Stocks Pay You 12 Times a Year
This is the granddaddy of them all. Start to type "emergency" into Google (GOOG), and the first suggestion is "emergency fund." The rule is to make sure you have six month's of living expenses tucked away in cash in case you losefyour job or suffer a financial setback. Of course it's important to have a financial safety net, but when you earn virtually nothing on your cash, this rule can cost you. For example, if six months of living expenses for you is $25,000, you'd be sacrificing close to $1,000 of income a year by keeping this money in a checking or money market account.
For years, I've broken the mold on this financial rule by telling clients they shouldn't have their emergency fund in cash. Instead, choose a short-term bond fund that pays 3 percent or higher for your safety net. If you need the money quickly, you can easily sell the fund and get access to the cash. If you don't need the cash –- and these emergency fund accounts are rarely used –- you can still make money on the assets.
Not so fast. There are many good reasons to contribute to a 401(k), such as tax savings, tax-deferred growth and a possible employer match, but there are also good reasons not to contribute as well. Don't blindly dump money into your 401(k) if you don't have an emergency reserve of some sort and there is a chance you will be laid off. It is taking longer for most to find a job, so if you think you may be out of work, make sure you have the resources to pay rent and buy food until you land a new job.
Also, if your employer doesn't provide a match and you are in a low-income tax bracket, it may make more sense to pay the tax now (since you are in a low tax bracket) and invest in a Roth individual retirement account instead. Use this 401(k) vs. Roth IRA calculator to crunch the numbers.
You cannot cut your way to wealth. Too many people and financial advisers focus on trimming expenses when they should be focused on the other half of the equation -- income. I'm a proponent for living within one's means, but too often that creates an artificial barrier or ceiling. "This is what I make, so I have to cut back to save more," is often the thought process. Rather than living within your mean, work on increasing your means.
There are many ways you can make more money, including asking for a raise, boosting your skills –- your human capital –- and getting a promotion, starting a side project in the after-hours or going back to school and starting a new career. What you make today is not necessarily what you can make tomorrow. Cut unnecessary expenses and then use your energy to increase your income.
You should only save for your children's education if you can afford it. That means when you're on track to having enough assets for your retirement. Assuming you have the retirement assets and now want to save for college, most advisers will recommend a 529 college savings account.
Not so fast. These 529 accounts have some real advantages, such as tax-free growth of contributions if they are used for approved higher education expenses. This tax-free growth is a big benefit. However, if you withdraw money from this account and do not use it for approved higher education expenses, the gains will be subject to ordinary income tax and a 10 percent penalty.
The big risk is if you fully fund your child's college education but he or she decides to not go to college, drops out, finishes early or goes to a less expensive school. You have the ability change the beneficiary to another qualifying family member without penalty, but if you have just one child, there may not be anyone you can transfer the funds to. You would then have to liquidate the account and pay the tax and penalty. If you are undeterred and still want to pay for your child's college education, start with a small contribution into the 529 and fund up to a maximum of 60 percent of the cost in case one of the above scenarios occur.
The average age of cars on U.S. roads is 11.4 years. So if you're average, then it may make sense for you to buy a car -– especially a car a year or two old –- instead of leasing. However, if you do not intend on driving the same car for over a decade, a lease may be a much better option. A new study by swapalease.com found it was better to lease than buy based on its criteria. And under certain circumstances, you may be afforded a larger business deduction with a lease compared to a purchase.
The certified financial planner designation is the gold standard when it comes to financial planning. I wouldn't think of hiring a financial planner if they weren't a CFP practitioner. However, just because you are working with a CFP doesn't mean you shouldn't research your adviser, his or her areas of expertise and how he or she charges. The CFP tells you he or she has advanced training in areas related to tax, investing and retirement planning; has passed a comprehensive and difficult exam; and has agreed to adhere to a high code of ethics.
The onus is on you to know what you need and to make sure your CFP financial planner can deliver. Don't get lulled into thinking that just because he or she have three letters after his or her name that he or she has been screened. Ask tough questions before you trust your money to anyone -– even a CFP.
Most financial pundits will advise taxpayers to have just enough taken out of their paycheck so when April 15 comes around, they will neither owe money nor receive a refund. The rationale is if you get a refund from the Internal Revenue Service, it means you paid too much in over the year -- and the government has had use of your money without paying you any interest. Keep the money and invest it yourself is the theory.
'Again, that's the theory, but reality is much different. It all comes down to psychology. I look at paying a bit more to the IRS as a forced and automatic savings account. Sure you won't earn interest, but human nature tells us you probably won't save the money anyway. There is a greater chance you will squander $100 a paycheck then if you receive a $2,400 check from the IRS. One approach takes a plan and discipline each month to save and invest while the other doesn't. A check from the IRS isn't an interest-free loan; it is an automatic savings plan.
Nobody wants to endure an IRS audit, but too often I see honest and ethical taxpayers avoid claiming certain deductions or taking certain positions that are completely legitimate because they fear it will increase their chances of an audit. First, your chances of being audited are small –- about 1 in 104 chance. If your return doesn't include income from a business, rental real estate or farm, or employee business expense deductions, your chances are even smaller -– 1 in 250. Second, if you and your tax preparer are not crossing the line, you have little to worry about. In fact, thousands of taxpayers get a check from the IRS at the end of the audit. Don't let a small chance of an audit keep you from taking advantage of every tax strategy for which you qualify.
Do what you love, and you'll never have to work a day in your life, or so the saying goes. It sounds good and feels good, but it's not necessarily true. Sometimes –- often, actually –- doing what you love can be a great hobby but not a good career. There are a lot of things I enjoy that I'll never make a dime doing. A better approach is to find something you enjoy, are good at and that you can get paid to That is the financial trinity you should aspire to find because it ties your interests with your skills with the marketplace
Follow this rule, and I'll send you straight to detention. We know college costs are soaring, and we don't want to bury our kids in college debt, so most parents prioritize college saving over retirement saving. Big mistake. If worse comes to worst, Junior can get a loan, work while in school or go to a less expensive school. Basically, Junior has decent options, and you have tough choices.
If you haven't saved enough for retirement, you are stuck. There's very little you can do other than slash your expenses, work longer or both. Save for your own retirement first. That's the financial rule you should follow. If you have amassed so much wealth when your children head off to college that you can afford to help them, go for it. If you haven't, you'd be doing your kids a disservice by jeopardizing your own retirement by paying for their tuition.