Monthly Dividend Stocks that Will Pay the Bills in Retirement
We’ve talked about the retirement crisis before on the channel. It is just insane that four-in-ten retirees live on nothing but social security. That’s about $1,300 a month and considering average spending by those 65 and older comes to just over $4,200 a month according to the BLS…it’s not nearly enough to live on.
And I’ve seen it first-hand. When my mom retired, her entire income relied on the $860 a month from disability. It was subsidized housing and scraping to get by each month.
That is not how you want your golden years to be. You’ve worked to hard. You’ve worked for too long to be scraping by in retirement.
So for this video, I wanted to help you create a monthly dividend stocks portfolio to create a little gold in your golden years. Show you how to put together a portfolio that will put cash in your pocket every single month!
We’ll start with how to pick monthly dividend stocks for your retirement portfolio. I’ll show you five of my favorite later but I want you to know how to find the best for your money so you can create that portfolio yourself.
I’ll then get you started with two great monthly dividend funds and then reveal those five dividend stocks paying an average 7.5% dividend yield and putting that money in your pocket!
Investing in Dividend Stocks
Investing in stocks can be difficult, but it helps to make decisions based on certain criteria. Dividend paying stocks are often held back by one thing or another; they may fluctuate in price, the company's business strategy may not yield sustainable dividends, etc. Nevertheless, dividend-paying stocks can be a lucrative addition to your portfolio if you select them correctly and build up your holdings over time.
This article provides some tips for investing in dividend paying stocks. It also gives examples of companies that meet these criteria and that might make good dividend investments today.
Generally speaking, when choosing among dividend-paying stock there are three major considerations:
First Company Reputation – Does the company have a history/reputation of being a reliable dividend-payer?
Second Company Stability – Has the company been increasing dividends consistently over the last several years?
Third Company Stock Price – Is the stock price of a reasonable level considering the first two considerations?
In addition to those criteria, you should also consider your own risk tolerance. If you are a conservative investor, you will want to favor companies that have been paying dividends for many years and that have a low risk of going out of business or canceling their dividends. However, if you are an aggressive investor willing to take on additional financial risk in order to gain higher yields, it is often better to focus on companies with more recent dividend records and slightly higher dividend payout ratios. Some investors may even choose stocks from small growth companies in niche sectors. On the other hand, if you are conservative, it's best to avoid dividends from these companies because they can be very risky and unpredictable compared with larger, more established businesses.
Ideally, if you are interested in dividends, you should choose companies that have a long history of dividend payments and that are increasing their dividends every year. These two characteristics demonstrate to investors that the company has firm financial footing and commitment to rewarding shareholders.
How to Pick Dividend Stocks for Retirement
So now, when it comes to picking those monthly dividend stocks for your portfolio, you really do need to start with what you need out of the stocks. Because the stocks you pick for maybe longer-term growth and dividends are going to be vastly different than those you might want in a retirement portfolio like we’ll talk about today.
For example, in that growth or long-term portfolio you might be ok with a little more risk. Maybe some monthly dividend payers that are a little more volatile, the total returns and even the dividends are at risk but the upside is also higher.
For a retirement portfolio though, safety is going to be more important. You need dividend payers with an iron-clad record of making those payments and stock prices that won’t destroy your return.
Because if there is one thing high dividend yield stocks are notorious for, it’s luring investors in with the promise of easy money…only to leave them with nothing but losses and disappointment!
Take shares of Armour Residential, ticker ARR, a real estate trust with an undeniable 12.5% dividend yield…an amazing yield until you consider the stock price has been cut in half over the last five years.
Even including that dividend, investors lost 4.6% a year!
Prospect Capital, another darling of dividend investors, who can resist a 14% dividend yield but with the shares down 32% over the last five years, investors have really only booked a 4.3% return annually.
So the first thing I want you to do, looking at monthly dividend stocks is to NOT just chase high dividend yields. You need to be looking at the price chart, make sure those losses aren’t wiping out your returns, and make sure the company has that long-term upside to higher cash flow.
Second here is make sure you’re diversifying the types of dividend stocks you buy. Nation, the problem here is that monthly dividend stocks tend to be from just four investment types; mortgage REITs, MLPs, BDCs and equity REITs. These can be some high-yield investments but they can also be extremely risky and can drop investors into those plunging stock nightmares.
Best Monthly Dividend Funds for Retirement
Now I’m going to show you two monthly dividend funds next that will help you spread your risk out over stocks but remember, when you’re looking at monthly payers, make sure you’re investing across at least a few of those business types.
Now the fun part, and we’ll start with those two monthly dividend funds. I like these as part of your portfolio for two reasons. One is they’re going to give you exposure to regular dividend stocks, something you don’t get with most monthly payers that are either REITs, BDCs or MLPs.
That means you’re going to spread your risk out a little more, across the hundreds of stocks in these funds, and collect those monthly dividends without losing sleep over your money.
Second though is that these funds leave some room for growth besides that dividend. Since the stocks the funds are investing in are growing the share price as well as the dividend, you get that potential to grow your portfolio as well as stash those dividends in your pocket.
That’s not always the case with these individual monthly dividend stocks. They may be able to sustain that ten- or twelve-percent yield but that’s about all the return you can expect, so it’s nice to have a part of your portfolio that’s growing the capital as well.
Our first monthly dividend fund is the Invesco S&P 500 High Dividend, Low Volatility ETF, ticker SPHD is a favorite among investors and pays a 5.4% yield.
This is a great dividend stock ETF because it combines the search for those high yields with a lower risk profile in those with lower volatility. The fund invests in 50 stocks of U.S. companies with high dividend yields that have also historically been safer than others. It’s a little more concentrated in a few sectors including real estate, utilities, financials and staples but those just tend to be less volatile than the economically sensitive ones.
Dividends have held up surprisingly well on this one, probably due to the fact that companies are less sensitive to the economy. And while the yield of 5.4% is lower than the monthly stocks we’ll look at, the fund has produced an 8.5% annual return since inception.
The next fund I’m adding is the iShares Preferred and Income Securities ETF, ticker PFF, which holds preferred shares of 489 companies and pays a 5.7% dividend yield.
I really like preferred shares during this stage of the economy and it’s one of Warren Buffett’s favorite strategies as well. Preferred shares are a higher class of stock issued by companies with a guaranteed dividend that gets paid out before ordinary stockholders. These shares are first in line after creditors in a liquidation and can be converted into regular shares if the stock jumps higher.
So these preferred shares are safer in or leading into a recession because they have a higher right to assets. While the dividend can be paused, preferred shareholders will get all their back dividends owed before regular stock dividends get a dime.
These are the investments Warren Buffett used when he bailed out the banks in 2009, buying billions in preferred shares in the banks.
Almost half the fund is in banks and diversified financial companies but a lot of that is a function of the fact that these financial companies just happen to use preferred shares more than other sectors. You also get good exposure to these other sectors like utilities, real estate and six other industries.
This is another one with a little lower yield but a great upside on total return. The fund pays a 5.7% dividend yield but has produced a total return of 12.5% annually over the last decade.
That’s our two dividend funds and again, I love these for that exposure to stocks as a complement to the monthly dividend stocks we’ll look at next that will be more concentrated in those other types like REITs and BDCs.
The Best Dividend Stocks That Pay Monthly
Our first monthly dividend stock pick is one of my favorites, STAG Industrial, ticker STAG, and its 4.4% dividend yield.
Now that 4% yield won’t be the highest in the list but this stock has produced a 16% annual return over the last five years and is in one of my favorite property types. STAG owns 450 industrial and warehouse properties across 38 states for a total 91 million square feet.
And while a lot of those other property types like office and retail have struggled this year, the warehouse market is red hot! The rise of ecommerce and online shopping has destroyed the retail property market but all those online orders need to be stored somewhere and that’s meant a boom in warehouse demand. In fact, 43% of the STAG’s property portfolio is involved in ecommerce activity.
No tenant accounts for more than 2% of the company’s total rent revenue, so the odds of a tenant failure vacating lots of space is zero. Shares trade for just 13-times funds from operations so a solid value-play here and the company only has $300 million in debt maturities this year and next.
Next here is Dynex Capital, ticker DX, and a solid 9.7% dividend yield with upside potential.
Dynex is a mortgage REIT, which means instead of holding the properties itself, it invests in the mortgages and makes its money on the difference between long-term rates and short-term borrowing. Most of the loan portfolio is in Agency residential and commercial loans which are those loans backed by one of the three government agencies; Fannie, Freddie or Ginnie Mae. So these are very strong loans for the most part.
And the most important things you can watch on mortgage REITs is what’s called the net interest spread. This is the difference between what the company is collecting on loans and what it’s paying on short-term funding, and the good news is we saw that spread increase into the second quarter from about 1.5% to 2% mid-year, so better profitability for the company.
Now mREITs do tend to be more volatile than the traditional type of REITs that own properties but they pay out higher yields too. Shares trade for just under book value at 0.94-times book which is right around the long-term average for the stock. Like some of these other monthly payers, there probably won’t be a huge amount of price upside here but you can count on that 10% dividend every single month.
Our lone BDC here is Horizon Technology Finance Corporation, ticker HRZN, for a 9% dividend yield.
So BDCs or business development corporations, make loans to small- and mid-size companies, those too big for your regional banks but still too small to get money from the capital markets. Horizon makes secured loans to venture and private-equity backed companies in the life sciences and technology industries…and honestly is there any better place to be for investing right now?
The portfolio of loans is well diversified by sector, geography and company stage. All these are going to be those fast-growing startups backed by venture capital and again, a great niche in healthcare and technology.
The average yield on portfolio debt is 16.3% and this is something you want to watch whenever you’re investing in BDCs. That average debt yield is the interest the firm is collecting on its loans so it’s important that it’s above the dividend yield paid out as a sign of dividend sustainability.
Horizon has all the funding it needs near-term with a $45 million share offer earlier this year and a $100 million debt facility. Shares are paying the 9% dividend yield and paid a special dividend of half a percent last April.
I wanted to get an MLP on the list and here we have Sabine Royalty Trust, ticker SBR, an energy trust established in 1982 on landowner’s royalties and other energy assets.
The company has an oil and gas portfolio that covers over two million acres in Florida, Louisiana, Mississippi, New Mexico, Oklahoma and Texas. Reserves on the assets are estimated to produce for at least another eight to ten years and the parent company regularly explores for new assets.
Energy has been one of the hardest hit this year and Sabine is no exception but its still paying a very solid 8.3% yield and has some great assets that will support the shares. The stock is trading 52% off its one-year high so even if it takes years to get back there, you’ll book a strong double-digit return including the dividend.
Our next monthly dividend stock is LTC Properties, ticker LTC, and its 6.5% dividend yield.
The real estate trust owns 180 properties in 27 states with skilled nursing accounting for 56% of revenue and assisted living centers bringing in the rest.
Now shares are down 33% this year for obvious reasons related to the pandemic but I was surprised researching this one that occupancy is still flat from last year at 85% in assisted living and 80% in skilled nursing. The company has been able to collect 92% of the rent due from property managers through the second quarter so it doesn’t look like the virus has affected operations to the extent feared.
Even if vacancies tick up or the economic recovery stumbles, LTC has over $503 million in an available credit line and $50 million in balance sheet cash. The company has long-term debt of $689 million but only $185 of that is maturing through the next two years so it’s got all the liquidity it needs to make it through this.
Long-term, this is a great play on America’s aging population and the demand for senior living facilities and the stock is selling at a discount. Shares pay a 6.5% yield and have produced a total return of 12% annually over the decade to this year.
You cannot rely on social security for retirement income and it's on every individual to make sure they can pay the bills. There's no better place to look than monthly dividend stocks for that consistent and reliable income. Learn how to create a portfolio of monthly dividend funds and stocks that will pay your bills.
Read the Entire Dividend Investing Series
- 5 Monthly Dividends Stocks for Retirement
- 7 Penny Stocks that Pay Dividends
- If You Only Invest in ONE Dividend Stock, Make it This One
- How to Create a Dividend Stocks Ladder and Live off Your Dividends
- Passive Income Dividends Portfolio [Monthly Dividends to Pay the Bills]
About the Author
Joseph Hogue is a financial expert and investment analyst. After serving in the Marine Corps, he started his career investing in real estate before becoming an investment analyst for some of the largest private investors. He's appeared on Bloomberg and on CNBC as an investment expert and has published ten books in personal finance. Now he helps investors reach their financial goals and invest in the stock market with some of the same advice he used when working for the rich.