3 High-Yield Stocks With Desirable Monthly Dividends

Dividend investors are generally seeking two different things when buying an income stock. First, they may be seeking the compounding of wealth by taking dividends received and reinvesting them. Or second, they may be seeking to pay living expenses with dividend income received. In either case, the typical quarterly dividend schedule that most dividend stocks utilize can leave a little to be desired when it comes to frequency of payments. On the other hand, there is a small group of stocks that pay their dividends on a monthly basis, tripling the number of payments the shareholder receives throughout the year. Whether an investor's goal is to reinvest the proceeds in more shares, or to use the dividend income for living expenses, a monthly payout is far superior to that of the typical quarterly schedule. The reason for that is because it either allows for faster compounding, or payments tied much more closely to living expenses. In the case of compounding, monthly payments allow the shareholder to buy shares earlier, and therefore receive a faster compounding rate of return on subsequent dividends. With that in mind, let's take a look at three monthly dividend stocks we like for their high dividend yields. Realty Income Realty Income is a REIT that bills itself as The Monthly Dividend Company, as it has paid a staggering 608 consecutive months of dividends to shareholders. In addition to that, Realty has boosted its monthly dividend 109 times since it went public back in 1994, so it is true royalty when it comes to dividend growth. The company owns more than 6,500 properties that are generally standalone retail properties, generating rental income through long-term leases. Realty was founded in 1969, should generate about $3.1 billion in revenue this year, and trades with a market cap of $43 billion. We like Realty for a few reasons, one being a history of strong growth. REITs are generally not high-growth vehicles, but Realty has managed to boost its adjusted FFO (funds from operations) per share by an average of nearly 7% annually over the past decade. That growth has come from a combination of organic growth and acquired growth, and we expect this to continue indefinitely given the model Realty employs has stood the test of time and recessions. We see 4% yearly growth ahead for the years to come. Likewise, the dividend has grown at more than 5% annually over the past 10 years, so Realty is making meaningful progress in returning capital to shareholders. The management team likes to do incremental raises frequently throughout the year, rather than one, larger raise annually, so in terms of compounding, Realty is truly in a class of its own. Even with a rally in recent weeks, Realty, is still yielding more than 4%, which is about triple that of the S&P 500. We like the stock, therefore, because of its combination of a very high yield, exemplary dividend growth history, and tested business model we believe will continue to succeed for many years to come. Prospect Capital Prospect Capital is a business development company that specializes in middle-market financing. Prospect offers financing products of varying kinds to companies that are big enough to need millions of dollars of financing, but not big enough to have gone public. This is the so-called middle market, and it is where Prospect makes loans to companies with sales of $25 million to $500 million annually. Prospect was founded in 2004, generates just over $700 million in annual revenue, and trades with a market cap of $3.2 billion. The company has volatile FFO and dividend histories because BDCs tend to have peaks and valleys in their ability to earn money, and subsequently pay shareholders. Prospect is no different, and it has experienced declining earnings and dividend payouts over time as a result. However, we see the current level of FFO per share as sustainable, and we therefore see the current dividend as sustainable. With the yield at 8.8% currently, Prospect offers income investors a hugely attractive yield that is paid monthly. While capital appreciation and dividend raises are unlikely, the sheer size of the current yield lands Prospect on the list of attractive monthly dividend stocks. Ellington Residential Mortgage Our third stock is a mortgage REIT called Ellington Residential Mortgage . The company acquires and manages residential mortgage-related securities, generating income off of those securities. The strategy requires a sizable amount of leverage to buy what should be stable and safe payout streams from mortgages, and returning the vast majority of earnings from these securities to shareholders via dividends. Ellington was founded 10 years ago, generates just $20 million of annual revenue, and trades with a market cap of $123 million. Having a relatively short trading history, as well as an inherently volatile business model means Ellington doesn't have the dividend streak pedigree of Realty Income. However, what it does offer is a dividend that has risen for the past two years, and today, is good enough for a world-beating 13% current yield. That means shareholders can generate about 1% per month in dividend income with Ellington, making it exceptional on that measure. For compounding or living expenses, that kind of return on a monthly basis, can be quite enticing. We note mortgage REITs are inherently volatile because earnings can be heavily impacted by housing market conditions, employment, and prevailing interest rates. But for now, Ellington's dividend looks safe, and we think the two years of dividend increases are an important vote of confidence from management. Final Thoughts While investors may not necessarily think of monthly dividend payments as being an important factor, we believe the advantage they offer over quarterly payments is sizable. We like these three monthly dividend companies for different reasons, but all are attractive in their own right. Realty Income offers safety and stability, as well as the likelihood of many dividend increases to come. Prospect Capital and Ellington offer extremely high current yields, but in exchange, a lower likelihood of increases. We like all three, however, for their high yields and monthly payout schedule.

3 High-Yield Stocks With Desirable Monthly Dividends

Monthly dividend payouts allow for faster compounding, or payments tied much more closely to living expenses.

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