The following is an excerpt from 10 High-Yield Monthly Dividend Stocks to Buy in 2020, originally published by Kiplinger’s.
The typical American’s life tends to be organized around monthly payments, yet somehow, monthly dividend stocks are the exception, not the norm.
Your mortgage, your car payment, your phone bill … even your Netflix payment is on a regular monthly payment plan. That’s perfectly fine when you’re working and are used to getting one or two paychecks every month. Budgeting is simply a matter of making sure your regular monthly income covers your monthly expenses with a little left over for emergencies.
But once you retire, the situation changes. Sure, the Social Security check still comes monthly, and if you’re lucky enough to still get a pension, your income generally comes in monthly as well. But the payout from the vast majority of your investments tends to be a lot more sporadic. Most stocks pay their dividends quarterly, and most bonds pay interest only semiannually.
“Cash flow mismatch is a common problem for recent retirees of all income levels,” says Mario Randholm, founder of alternative investments specialist Randholm & Co. “And the cash drag from keeping more cash on hand to compensate for erratic income reduces long-term returns.”
High-yield monthly dividend stocks can be part of the solution. Stocks that pay monthly dividends better align your income to your spending.
You shouldn’t buy a stock simply because it pays a monthly dividend, of course. That would be as ridiculous as choosing a mortgage bank based on the specific day of the month your payment would be due. Clearly, the stock needs to meet your criteria for yield, quality or growth prospects. But if a stock checks all the right boxes, why not also enjoy a monthly payout?
Here, we’ll look at high-yield monthly dividend stocks to buy in 2020.
Let’s start with Main Street Capital (MAIN), a blue-chip business development company (BDC). Main Street provides debt and equity capital to middle market companies that are generally too large to go to the local banks for capital, but not quite large enough to do a proper stock or bond offering.
The capital Main Street provides typically is used to support management buyouts, recapitalizations, growth investments, refinancings or acquisitions.
BDCs are similar to real estate investment trusts (REITs) in that they are required to pay out substantially all of their earnings in the form of dividends. This is good news for income investors, of course, as many BDCs end up being high-yield dividend stocks, some of which pay monthly.
But there is one downside: It can be difficult to maintain a steady payout when you can’t keep extra cash on hand. For this reason, many BDCs end up having to cut their dividends after a slow quarter or two.
That’s obviously upsetting to investors. However, Main Street avoids this problem by keeping its regular dividend comparatively low and then topping it off twice per year with special dividends that can be thought of as “bonuses.” This makes it among the most conservatively managed high-yield monthly dividend stocks to buy, but shareholders aren’t complaining.
At current prices, Main Street yields an attractive 5.7%. The special dividends over the past 12 months have added an extra 1.2% for a total yield of about 7%. That’s far from shabby.
To finish reading, please see 10 High-Yield Monthly Dividend Stocks to Buy in 2020.
Charles Lewis Sizemore, CFA, is chief investment officer of the investment firm Sizemore Capital Management and the author of the Sizemore Insights blog.
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