Retirees: 3 Monthly Dividend Stocks Paying Up to 9.1%
August 27, 2019
Monthly Dividend Stocks for Retirement Income
Let me ask you a question: How much money do you have saved for retirement?
It doesn’t matter how much cash you have stashed away; it never quite feels like enough, does it?
Low interest rates compound the problem further. Years ago, a six-figure nest egg generated enough income to fund a comfortable retirement. Today, bonds and bank certificates of deposit (CDs) pay next to nothing—or literally less than nothing if you live in some parts of the world.
One solution: monthly dividend stocks.
Longtime readers know I have long pitched the virtues of investing in this niche. Monthly dividend stocks still pay decent yields and you can find enough quality and variety in this group to build a respectable income stream.
Moreover, the more-frequent payment schedule makes it easier to coordinate your income with your monthly bills. That might not be a big deal for younger investors accumulating their nest egg, but for retirees living off their investment income, this presents a big advantage.
So to help get you started, I’ve put together a list of three of my favorite monthly dividend stocks. To be clear, this list doesn’t constitute any recommendations, but it does provide a jumping-off point for further research.
Finally, a Safe 7% Yield
I skip over most high-yield stocks. That’s because, once you start digging into the bigger payouts, you realize that most of these big distributions stand on borrowed time. But once in a while, you stumble upon an exception.
Case in point: Main Street Capital Corporation (NYSE:MAIN). This company lends money to small- and mid-sized businesses in exchange for interest payments.
This niche has emerged as a lucrative business in recent years after big banks cut back their lending to those kinds of companies. Because Main Street Capital faces little competition, it can charge high interest rates with strict covenants.
This has created a tidy income stream for shareholders. Today, Main Street Capital pays a monthly dividend of $0.21 per share. Executives supplement these payments further through semi-annual special distributions. If you include those extra payments in your calculation, that raises the yield on MAIN shares to almost seven percent.
589 Straight Monthly Dividend Payments (and Counting)
Decades ago, Realty Income Corp (NYSE:O) started billing itself as “The Monthly Dividend Company.” Since then, management has lived up to that promise. Since the partnership’s inception in 1969, its executives have paid out 589 consecutive distributions. Over that period, management has boosted the distribution at a 4.6% compounded annual clip. (Source: “Monthly Dividend Commitment,” Realty Income Corp, last accessed August 27, 2019.)
Realty Income’s success comes down to management’s unique investment strategy. The company leases out properties to tenants on a “triple net” basis. This means the renter, not Realty Income, has to front the cost of renovations, maintenance, and property taxes. So almost every dollar the partnership receives in rental income flows straight to the bottom line.
You can expect that payout to keep growing. Over the past few years, Realty Income Corp started expanding outside of retail buildings and into the fast-growing industrial segment.
Moreover, management purchased their first property in the United Kingdom this spring, providing a foothold for European expansion. Both of those avenues should provide plenty of opportunities to pad the bottom line.
This Closed-End Fund Pays 9.1%
I love buying a buck for a quarter. And in the world of closed-end funds, these opportunities come up from time to time. Because supply and demand determine the market price for units, these investments sometimes trade at discounts to their liquidation value.
BlackRock Energy & Resources Trust (NYSE:BGR) is a good example. The fund owns stakes in a collection of blue-chip oil and gas businesses, such as BP plc (NYSE:BP), Royal Dutch Shell Plc (NYSE:RDS.A), and Exxon Mobil Corporation (NYSE:XOM). Management then milks these stocks for steady, monthly income—which comes out to 9.1% at the time of this writing.
But because Wall Street hates the energy patch right now, this fund trades at a 10% discount to its liquidation value. In essence, prospective investors are literally paying $0.90 for $1.00 in value. And if we see a rebound in oil prices, that could result in tidy capital gains and higher distributions.
To be clear, BlackRock Energy & Resources Trust represents the more volatile name on this list. But investors are getting more than compensated for the risks they’re taking. As long as you understand the potential issues up front, this fund presents a lucrative income supplement for retirees.
