Why invest in Monthly Dividend Stocks?

 

Investing in monthly dividend stocks could be a great investment strategy for your portfolio. Most people have heard of companies that pay dividends quarterly, but paying a dividend every month is not as common. Here are the basics of monthly dividend stocks and why you might want to invest in a company that uses this method. 

Who Issues Monthly Dividend Stocks?

Most companies that issue monthly dividend stocks are not your typical companies that are represented by stock. Most of the companies that do this are holding companies, REITs, trusts, or closed end funds. Therefore, they are companies that hold a number of different assets and use a number of different strategies. By comparison, companies that pay quarterly stocks are individual companies. 

Benefits of Monthly Dividend Stocks

  • Passive income- The goal of every investor is to create a passive income source. We want to have money coming in all the time without having to directly work for it. This is what dividends create for investors. When you can increase the frequency to once a month, this is a definite benefit to you as an investor.
  • Not price-sensitive- With most stock traders, they live and die by the prices of the stocks that they invest in. They watch the stock charts and they want the prices of the stocks to increase. When you invest in monthly dividend stocks, this is not as critical to you. You will still get your monthly dividend payment regardless of what the stock price is. Therefore, you can create some consistency in your returns without worrying about the stock price.
  • More diversified- The types of companies that pay out monthly dividends are typically very diversified with a number of different income streams. They make their money from a number of different investments and assets. When you compare that to a company that pays quarterly dividends, they are usually an individual company. These types of companies typically rely on their main source of income. Therefore, they could decide not to pay a dividend or cut it significantly. With monthly dividend companies, this is less likely to happen. 

Risks

  • Lack of information- When you invest in this type of stock, you will want to make sure that you understand what you are investing in. When you invest in a company that gets their income from multiple sources, you need to find out exactly what they do. Find out how they make their money and decide whether you think it can be sustained.
  • Volatility- Some of these companies tend to invest in high risk assets. For example, if they invest in one particular commodity, the company could be greatly hurt if the price of that commodity lowers. 

Tax Considerations

One thing that you will have to consider is the tax implications that come with dividends. When you receive dividends, they are taxable at the rate of your personal tax bracket. Therefore, some investors prefer to get their gains from the stocks themselves. This allows them to pay the capital gains tax rate instead. 

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