Monthly dividend stocks are stocks that pay a dividend every month of the year. If you are already a dividend (or income) investor, you know that most dividend paying stocks pay their investors every three months, or quarterly, so these monthly dividend stocks may be new to you. (There are also stocks that pay annual dividends).
The first main characteristic of monthly dividend stocks is that while they are traded as individual stocks on regular stock exchanges (i.e. you can use your online discount broker to buy and sell them), they are usually holding companies, trusts, REITs, master limited partnerships, or closed end funds that invest in a portfolio of income producing assets. This makes monthly dividend stocks different from many quarterly dividend paying stocks, which are usually (but not always) individual companies.
Since most monthly dividend stocks get their income from many sources, they have a built in diversification of income streams, which can make their monthly cash dividend payouts less risky than the dividends from individual companies – a good example of this risk would be General Electric (GE), a large conglomerate blue chip stock, which cut it’s dividend by 68% in February, 2009. This is a good example of a company that is considered among the most financially solid in the world, is very widely held, followed by a lot of analysts, but still cut it’s payout, even though a year before the cut most people thought the company would be able to maintain it’s quarterly cash payout to investors.
If you are an income investor considering an investment in a stock with monthly dividends, make sure you do some research on what stocks, bonds, or other income producing assets, actually produce the income for your selected stock. If the stock invests in one industry, for example oil producers, and in this case oil prices go down, your dividend payment (and the price of your monthly dividend stock) could go down in conjunction with the price of oil.
There is one type of monthly dividend stock that deserves a special note of caution for investors seeking consistent dividend timing in their portfolios – these are called Canadian Energy Royalty Trusts. While these stocks provide a monthly payment of dividend income, the laws in Canada were changed, and these changes will take effect in 2011. Basically, the laws were changed on these investments so that they will be taxed in Canada as regular corporations (they currently do not pay taxes) starting in 2011. These new income taxes will have the effect of lowering the yields on these investments, since some of the income that used to go to investors in the form of a monthly payout of dividends will now go to the Canadian government to pay these new taxes. Also, keep in mind that the Canadian government currently withholds 15% of these cash dividend payments to U.S. investors as a non-resident withholding tax, but U.S. investors can also apply for a partial refund of these taxes.
As you can see, monthly dividend stocks may have a place in the investment portfolios of people that like dividend investing, and a steady stream of income, but as always, you need to do your homework before investing in these stocks.
Learn more on Monthly Dividend Stocks, and see if they can help you meet your investment and current income goals.
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