If you're saving for retirement or just need a dependable source of income, then I have found a few stocks I consider standouts for their safety and high yield. With these stocks, it's possible to build a portfolio generating predictable monthly income sufficient to cover monthly bills for the mortgage, utilities and car loan payments. Knowing in advance that you can count on receiving the income needed to offset these expenses simplifies budgeting and provides great peace of mind.
Other advantages to owning monthly dividend stocks are the result of the accelerated compounding effect. With monthly dividends, you can put each dollar received immediately back to work. Dividends can be reinvested in new shares more often, causing the dividend income to grow even faster. Another advantage that is often overlooked is reduced portfolio volatility. The predictability that comes with monthly dividends helps establish a floor for the stock's share price, which minimizes the risk of big price swings.
A quick bit of research shows there are more than 300 investments that pay monthly dividends. The majority of these investments are closed-end income and bond funds, not individual stocks. If you prefer individual stocks, then a great place to look for monthly dividend payers is among lesser-known asset classes such as real estate investment trusts (REITs), business development companies (BDCs) and Canadian energy trusts.
I've searched through each of these groups for the companies that pay monthly dividends, and found what I think are the best of the best. Here they are...
There are also a few foreign companies that pay monthly dividends, but they don't fall into the asset categories listed above. Most have American depositary receipts (ADRs) listed on the major U.S. exchanges. Here is a brief description of each of these companies.
Atlantic Power (NYSE: AT) is a Canadian utility company that supplies natural gas mainly to customers in the United States. Although the company is not currently profitable due to currency depreciation, earnings are improving and Atlantic Power anticipates becoming profitable in 2014. Atlantic Power shares yield roughly 9.6%.
Enerplus Corp. (NYSE: ERF) is one of Canada's largest oil and gas drillers. The company owns properties in many major resource plays, including the Marcellus Shale. Enerplus has produced solid income growth in the past three years, but results have suffered recently due to weak natural gas prices. As a result, the company was forced to cut its dividend in half last year. Even at the reduced dividend rate, Enerplus offers an attractive 8% dividend yield.
Shaw Communications (NYSE: SJR) is a diversified Canadian communications and media business. The company provides broadband cable and high-speed Internet services to more than 3.4 million customers and operates one of the largest TV networks in Canada. In the first fiscal quarter of 2013 ended last Novemeber, Shaw's earnings improved 16% to 50 cents a share, compared with the same period the previous year. The company raised its dividend 5% in January 2012. Shaw shares currently yield about 4.5%
Student Transportation (Nasdaq: STB) is North America's third-largest provider of school bus services. The company operates a fleet of 9,000 school buses in the United States and Canada. The stock yields about 8.6%, but because of aggressive spending on acquisitions, the company has been pursuing a somewhat risky strategy of relying on debt and equity offerings to help fund its dividend.
Monthly dividend payers in Brazil
There are also two Brazilian bank stocks that pay monthly dividends. The Brazilian government has been pressuring the banking sector this year to cut interest rates and service fees, so the stocks were recently affected. Shares of Itau Unibanco (NYSE: ITUB) are up 4.7% in the past year. Rival Banco Bradesco SA (NYSE: BBD) has fared slightly better, with shares up 5.9% the same period. Both stocks currently yield between 3-4%.
Risks to Consider: BDC and REIT dividends are generally taxed as ordinary income, so these stocks are best held in a tax-deferred account. U.S. citizens pay a 15% foreign tax on Canadian dividends held in a taxable account. But investors can apply for a refund (foreign tax credit) for at least a portion of the amount withheld when they file for annual tax return with the Internal Revenue Service.
Even with the higher dividend tax rates, dividend-paying stocks should remain popular with investors due to their attractive yields compared with other assets. Most of the monthly dividend payers listed here provide generous yields, and all offer more frequent opportunities for reinvestment. Investors should note REITs and BDCs are unaffected by the tax rate change since their dividends are already taxed as ordinary income.
Action to Take --> This list of monthly dividend payers is meant to be a starting point for your own research and are not buy or sell recommendations for the individual stocks. But if you're saving for retirement or simply want to build a source of dependable Retirement Savings Stocks, then any of these stocks could help you do just that.