You may have noticed that most securities pay their dividends quarterly, that is, every three months. Others pay monthly and a few securities may pay annually or semi-annually. Although quarterly payments are far more typical, the more frequent monthly dividends do provide a slight advantage for investors.

For starters, monthly payments give you a simple way to get a steady income stream throughout the year. That said, with a little effort you can also create a consistent income stream by carefully selecting stocks that pay their quarterly dividends at different time slots. For example, you could buy one stock that pays a dividend in January, April, July, and October. Meanwhile, you could buy another that pays in February, May, August, and November. Finally, you could add one that pays its dividend in March, June, September, and December. By holding these three securities, you would receive regular a dividend check every month.

Register for Carla Pasternak's High-Yield Investing newsletter today and you'll receive as many as SIX in-depth research reports absolutely FREE!

If you are letting your dividends grow instead of using them for income, then investing in securities that pay monthly dividends can give you a slight edge here, too. They allow you to grow your dividend income somewhat faster through the magic of compounding. In the short-term, the difference between monthly and quarterly dividends is fairly negligible, but over the long-term, the monthly installments do add up.

For example, let's say you buy 1,000 shares of a $10 stock, which pays a $1.20 per share annual dividend. That equates to a 12% yield per year, or 1% per month. If the dividend is paid monthly and then reinvested back into the stock, then in one year you would receive $1,268.25 in dividends. As a fraction of your original $10,000 investment, your total compounded returns would be 12.68%.

Now let's say the dividend is distributed quarterly instead. Every three months, you receive 3% of your original investment. At the end of the year, you would earn $1,255.09 in compounded returns, or a 12.55% return on your original $10,000 investment.

As you can see from the table below, your compounded returns are slightly better -- by 13 basis points -- from the monthly versus quarterly payout if you hold the stock for one year only.

The advantage of the monthly payouts becomes somewhat more significant for a long-term investment. Using the same calculations as we did above, your compounded gains on the monthly dividend if you hold the stock for 10 years come to $23,003.87. That gives you a 230.04% return on your original $10,000 investment, or an average of 23.00% annually.

Your compounded returns on a quarterly dividend payout over 10 years are $22,620.38, giving you a 226.20% gain, or 22.62% annually. Over this longer term, your compounded returns improve by 38 basis points per year for a monthly dividend payer.

The bottom line is that monthly dividends do have a slight edge over quarterly or less frequent payouts. They provide a steady income stream and marginally higher returns on your investment. Still, the differences are not that great, and the main focus of your stock selection should be on the quality of the dividend payments, not on their frequency. In other words, considerations like earnings prospects and dividend growth potential are far more critical to your overall returns than dividend frequency.

For investors seeking that added advantage of more frequent dividend payments, the list below should serve as an excellent starting point. It presents a fairly complete list of monthly dividend-payers with yields of 5% or more. Some of these securities may have stronger fundamentals than others, so it's important to check them out more closely before you reach for the monthly payout . . .

Important Note: Throughout the remainder of this article, editor Carla Pasternak and our research staff provide a list of over 100 securities that pay dividends monthly and yield at least 5%. However, in order to view the remainder of this article, you'll need to subscribe to our premium newsletter -- High-Yield Investing. After you subscribe you'll receive immediate access to this full article, as well as our monthly High-Yield Investing newsletter and a host of additional premium content. Please visit one of the following links to continue. . .

Good investing!

Carla Pasternak
Editor
High-Yield Investing
http://www.StreetAuthority.com

Carla has been employed in the investment industry for more than two decades. In addition to her work as a writer for several other nationally recognized financial publishers, her previous experience includes a position as President of a well-respected investor relations firm. She has also been writing shareholder reports for public companies (annual reports, speeches, corporate profiles, slide shows, etc.) since 1980.

A highly successful investment analyst, Carla specializes in high-yield, income-paying stocks. In that pursuit, she's always mindful to select companies that not only pay rich dividends, but that also have the potential to deliver strong long-term capital gains.

On the educational front, Carla holds both MBA and Ph.D. degrees. When she's not watching the market, she's teaching business courses at the college level and managing several million dollars in portfolio assets.

Income Security of the Month If you're looking for high yields, monthly payments and unprecedented safety from your investments, then you need to learn more about our "Income Security of the Month" for November 2008. This stable preferred stock has a long track record of paying some of the most solid dividends in Wall Street history. In fact, the preferred issue pays a monthly dividend totaling 10.3% annually and has outperformed the S&P 500 by more than +44 percentage points over the last year!

Top 10 Stocks for 2008! Since we began publishing this report back in 2003, the picks we've featured have consistently beaten the broader market -- delivering average gains of +21.3% per year and outperforming the S&P by a nearly 2-to-1 margin. Act now to reserve your copy of our newest report -- Top Ten Stocks for 2008.

 

Success Trading -- 365 Days Without a Loss Success Trading Group scored 52 wins in 52 weeks! Get their weekend newsletters free.  High-Yield Investing If you're looking for both high yields and enormous capital gains, then you need to learn more about our "Income Stock of the Month."	Stephen Leeb's Market Forecast Receive a free ongoing, PhD level Wall Street education in how the markets work so that you can see into the future and position yourself accordingly. Investor's Business Daily (IBD) Get 10 Free Issues of Investor's Business Daily (IBD) – Plus 2 Free Weeks of Investors.com