Want More Income? Invest in These Monthly Dividend Payers

Tim Begany's picture

Thursday, August 25, 2011 - 11:00am

by Tim Begany

Income investors are like anyone else when it comes to getting paid: they'd rather get paid sooner rather than later.

But unlike some, they have a good reason for it. Because of inflation, money is always worth more now than later. Plus, money you get now can be put to work immediately to earn even more money. Income investors know this. And as it turns out, many savvy ones are using this fact to their advantage by owning stocks that pay dividends monthly rather than quarterly. Why? Because stocks that pay dividends monthly allow income investors to take advantage of more frequent compounding, which make a noticeable difference in returns over time.

Here's an example...

Let's say you put $25,000 into a $50 stock with an annual dividend of $1.50 per share paid quarterly (your yield would be 3%). This means your quarterly paycheck is $0.375 ($1.50/4 = $0.375 paid every three months) from each of the 500 shares you purchased -- a total paycheck of $187.50 a quarter ($0.375 x 500 = $187.50). Let's also say you hold the stock for 25 years, and the price rises by an average of 8% annually during that time and all dividends are reinvested each quarter. Based on those assumptions, your initial investment of $25,000 would be worth $239,660 after two decades. Pretty nice, right?

But look what happens when the very same dividend is spread over 12 months instead of being paid quarterly. In this case, you'd get $0.125 ($1.50/12 = $0.125) from each of your 500 shares for a total of $62.50 a month ($0.125 x 500). With all of our other assumptions remaining the same, but this time you reinvest the dividends each month, your investment would grow to $242,944 in 20 years.

That's an additional $3,284 for retirement (or other goals) simply because you chose a security that paid you sooner rather than later. If you bought five such securities and put $25,000 into each, you'd have an extra $16,420 for your golden years. Not bad.

The obvious question now: Where can you find good, solid monthly dividend payers? None of the household names like General Electric (NYSE: GE), Microsoft Corp. (Nasdaq: MSFT), AT&T Inc. (NYSE: T) and others pay monthly dividends. To help in your search, I've listed four securities that have a monthly dividend along with some pertinent facts and a comment or two on why they're worth your consideration.

1. Permian Basin Royalty Trust (NYSE: PBT)
Recent share price: $21.43
Trailing 12-month dividend: $1.41
Latest monthly dividend: $0.15
Payment date of latest dividend: August 12, 2011
Yield: 8.2%

Why you should consider it: This is one of the largest of a handful of royalty trusts established to develop mature but still-productive natural resource deposits -- in this case, minerals, oil and natural gas located in the Permian Basin of West Texas. As I recently noted in "3 Little-Known Securities with Some of the Highest, Safest Yields Around," dividends you receive from the Permian Basin Royalty Trust are taxed at lower capital gains rates because of special tax rules for royalty trusts.

2. Realty Income Corp. (NYSE: O)
Recent share price: $33.16
Trailing 12-month dividend:$1.73
Latest monthly dividend: $0.15
Payment date of latest dividend: August 15, 2011
Yield: 5.4%

Why you should consider it: This is a real estate investment trust (REIT) with nearly 2,500 holdings, mainly freestanding, single-tenant retail properties. When evaluated on a quarterly basis, the dividend for Realty Income Corp. has risen for 55 straight quarters. This is because most of the trust's tenants sign long-term leases with regular rent increases.

3. Shaw Communications, Inc. (NYSE: SJR)
Recent share price: $22.17
Trailing 12-month dividend: $0.91
Latest monthly dividend: $0.08
Payment date of latest dividend: August 11, 2011
Yield: 4.2%

Why you should consider it:
Calgary-based Shaw Communications is the second-largest cable TV operator in Canada, serving 2.3 million basic cable and 1.7 million Internet subscribers, mainly in western Canada. The company also provides satellite TV, which accounts for about 20% of its business. At more than 14%, Shaw's net margin is one of the best in the business, and the company has a history of enhancing shareholder value through stock buybacks as well as raising its dividend.

4. Atlantic Power Corp. (NYSE: AT)
Recent share price: $14.87
Trailing 12-month dividend: $1.10
Latest monthly dividend: $0.09
Payment date of latest dividend: July 29, 2011
Yield: 7.4%

Why you should consider it: Atlantic Power Corp., headquartered in Boston but domiciled in Canada, is a merchant electric power producer (meaning it operates in unregulated markets). The company owns 12 power-generation facilities -- eight of which are natural gas and one each of hydroelectric, wind, coal and biofuel -- with a total operating capacity of 871 megawatts. Because Atlantic Power Corp. is aggressively expanding its biofuel power generation capability -- for example, it expects to complete a $207 million, 54 megawatt power plant that runs on biofuel in Georgia by the end of 2012 --  the company is becoming well-positioned to gain dominance in the growing biofuel power generation industry. Once the new plant in Georgia is up and running, biofuel power generation is expected to represent 11% of the company's power output by the end of 2012.

Action to Take --> If you're an income investor, consider buying shares of monthly dividend payers to enhance your long-term returns and create a more consistent income stream once you're retired. I've only described a handful of the hundreds of monthly dividend payers that are out there -- the list above is just to get you started. Amy Calistri, who edits StreetAuthority's Daily Paycheck newsletter, has all kinds of ideas for income investors. In July, she was able to earn $1,412.08 in her real money portfolio. If you want to learn more about Daily Paycheck, go here.

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Tim Begany does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.