3 Monthly Dividend Stocks Paying Up to 15.6%
The Best Monthly Dividend Stocks for Retirement Income?
If you’re over 55 with some money set aside, then you probably already know one investment truth: converting your savings into a stream of retirement income can be a big headache.
The Federal Reserve has maintained a low interest rate policy since the last financial crisis. That approach has created windfalls for banks and debtors. But for savers—the people who worked hard, lived on less than they made, and saved diligently for retirement—today’s low yields have cracked their nest eggs.
Plus, savers have to deal with another problem: infrequent payouts. Most stocks and bonds pay, at best, on a quarterly basis. That’s fine for those still collecting a biweekly paycheck. But for those of us who are counting on our investment portfolios to pay the bills, it creates an extra challenge.
But now there’s a group of companies that have started catering specifically to retirees: monthly dividend stocks.
Rather than following a traditional quarterly or semi-annual distribution schedule, these firms pay dividends every month. Moreover, they tend to pay larger yields in order to keep their shareholders happy.
This creates a win-win situation. Companies lock in a loyal investor base. Shareholders, meanwhile, can better match their income with their monthly bills.
In other words, it’s the perfect retirement income stream.
Admittedly, the universe of monthly dividend stocks remains small. Most of the companies in this group consist of income trusts or limited partnerships. And, of course, you should never buy a stock based solely on its distribution schedule.
But you can find enough quality and variety here to create a portfolio that spins off reliable cash flow. To help get you started, I’ve highlighted three of my favorite monthly dividend stocks below.
Realty Income Corp
Realty Income Corp (NYSE:O) has stumbled upon one of the most lucrative types of deal in the real estate business: the triple-net lease.
These deals are simple to wrap your head around.
Retailers like drug stores, dollar stores, and convenience stores need cash to fund and grow their businesses. Realty Income offers to front the cash that these businesses need by buying retail store properties. In exchange, the retailers agree to lease the buildings back for an extended period of time and pay for all of the upkeep.
These triple-net deals have a lot of advantages for Realty Income Corp. First, tenants sign lease agreements for up to 20 years, so executives can circle the dates on the calendar years in advance for when they’ll get paid.
Moreover, Realty Income pays almost nothing in the way of insurance, maintenance, or property taxes. That means almost every dollar of rental income flows straight to the bottom line.
That has created a lucrative retirement income stream. Since Realty Income went public in 1994, management has mailed out checks to investors every single month.
O stock currently pays a monthly dividend of $0.23 apiece, which comes out to an annual yield of almost four percent. (Source: “Dividend Information,” Realty Income Corp, last accessed February 4, 2020.)
Cross Timbers Royalty Trust
Cross Timbers Royalty Trust (NYSE:CRT) is the ultimate cash cow business.
Spun out from natural gas giant XTO Energy Inc. in 1991, the partnership owns interests in a collection of oil wells across Texas, Oklahoma, and New Mexico. But unlike most energy companies, Cross Timbers doesn’t plow its profits into finding new gushers. Instead, management is content to milk the company’s existing properties for large, ongoing streams of cash.
This has created unusually large payouts. In January, Cross Timbers declared a distribution of $0.10 per unit. (Source: “Cash Distributions,” Cross Timbers Royalty Trust, last accessed February 4, 2020.)
On a forward basis, that comes out to a dividend yield of 15.6%.
Of course, a higher yield comes with higher risk. The distribution, as you might expect, fluctuates month to month with the ups and downs of the energy market. Moreover, the partnership’s oil wells, and by extension Cross Timbers’ payout, will eventually run dry.
But for those who understand the risks up front, royalty trusts like Cross Timbers Royalty Trust can pay off.
Cushing Renaissance Fund
I love buying a buck for a quarter. Of course, the stock market doesn’t offer these opportunities often. But once in a while, a quirk in the system allows us to scoop up great assets at a discount.
That’s the type of opportunity we have today with The Cushing Renaissance Fund (NYSE:SZC).
This closed-end fund represents a bet on America’s shale energy boom. Over the past few years, management has assembled a portfolio of energy stocks poised to profit from this bonanza, such as BP Plc (NYSE:BP), Phillips 66 (NYSE:PSX), and Sunoco LP (NYSE:SUN).
Short-term, however, these stocks have fallen out of favor on Wall Street. And because supply and demand determine the market price, SZC units can trade at a discount to their real value.
Right now, shares of The Cushing Renaissance Fund trade at a 19%+ discount to its liquidation value. That means investors can buy a great set of oil and gas companies for about $0.80 on the dollar.
Investors will get paid well while they wait for that discount to close. Today, The Cushing Renaissance Fund pays a monthly distribution of $0.14 per unit. (Source: “Distributions,” The Cushing Renaissance Fund, last accessed February 4, 2020.)
That comes out to an annual yield of 13% at today’s market price.