Generating Income with Monthly Dividends

Published Mon, 4 June 2012 10:00 CET by

Among dividend-paying stocks, there is a small group of companies, real estate trusts (REITs), or master limited partnerships (MLPs)/income trusts that pay dividends or make distributions on a monthly basis. This form of dividend distribution can be advantageous for some investors, especially retirees, as it helps them align better their monthly income flows with monthly expenses such as rent, mortgage, or regular bills. Dividend payments on a monthly basis also allow for monthly dividend reinvestments, which increases the compounding frequency and thus the growth in investor's income streams. However, the pool of companies, REITs, and MLPs paying dividends or making cash distributions monthly is very limited. It is confined to a small number of business entities that operate in a few industries, such as real estate, energy, or financial services.

Investors should carefully structure their income portfolios in a way that maximizes potential total returns with minimal acceptable risk. Hence, investors should not sacrifice lower risk vis-à-vis diversification for a high yield. While making sure they limit an exposure to any particular industry, investors should buy shares in those companies, REITs, or MLPs that pay dependable dividends/distributions that increase over time.

Here's a list of some monthly dividend paying stocks:

Monthly Dividend Paying Stocks (Ranked by Dividend Yield) Table

Dividend Yields Graph
Armour Residential REIT is a mortgage REIT (mREIT) that buys residential mortgage-backed securities issued or guaranteed by U.S. government agencies or U.S. government sponsored entities such as Fannie Mae and Freddie Mac. The mREIT pays an exceptionally high dividend yield of 17.3%. However, this REIT has lowered its cash distributions in recent years, including this year. The REIT has a very high payout ratio, though it has been able to sustain cash distributions by raising capital through equity financing, taking advantage of a favorable market climate as its units trade at a small premium to net asset value (NAV).

Enerplus Corporation is an income-oriented investment trust operating as an independent oil and gas producer with assets in Canada and the United States. The trust pays a dividend yield of 15.6%. The company has been cutting dividends, although its yield remains high. One of the reasons for such a high yield is a plunge in the corporation's stock (unit) price. The trust has lost about 47.2% of its value from the beginning of the year alone. Its large exposure to low natural gas prices and high debt load amid elevated capital expenses threatens the sustainability of its cash distribution.

Pengrowth Energy Corporation is an intermediate Canadian producer of oil and natural gas. It started as a "pension (trust) fund investment" in the oil- and gas-producing assets for income. The company currently pays a dividend yield of 12.0% with a high payout ratio of 370% of trailing-twelve-month earnings. The company's free cash flow has shrunk and low gas prices indicate that its earnings will continue to be under pressure. Therefore, some market observers question the sustainability of the corporation's cash distributions at the current level. The yield has also swelled due to a large year-to-date decline in the company's stock price.

Prospect Capital Corporation is a private equity business development company (BDC) "specializing in late venture, middle market, mature, mezzanine finance, buyouts, recapitalizations, growth capital, development, and bridge transactions." The firm pays a dividend yield of 11.4% on a payout ratio of 73%. The company has reduced the level of dividends since five years ago, but its prospects have improved recently. Interestingly, the yield remains elevated despite a run up in the stock price of 13.6% from the beginning of the year. It should be noted, however, that the company's earnings are very volatile, which can have an effect on the dividend payouts.

Permian Basin Royalty Trust is a U.S.-based oil and natural gas royalty trust. It pays variable-rate monthly cash distribution with a yield of 9.7% based on the current stock price. The trust recently raised its cash distribution by 23.6%. The trust pays out 100% of its earnings in distributions; by nature, it is required to pay at least 90% of its proceeds in cash distributions.

Atlantic Power Corporation is a power generation and infrastructure company with U.S. and Canadian production assets. It pays a yield of 8.6%. The utility has significantly increased its dividends since 2009, despite its negative earnings. Its cash flow has also sunk deep into the red. The company has recently acquired new generation assets that it believes will help sustain dividend payouts.

Student Transportation is a North America's third largest provider of school bus transportation services (the company also owns non-operating positions in the oil and gas assets in the United States). The company pays a dividend yield of 8.2%. Even though company's earnings per share fell in 2011, Student Transportation paid a higher dividend last year than in 2010. The company has been paying dividends for only three years. It has raised capital through equity offers, using partial proceeds to fund dividend payouts. It is yet to return to profitability. The company's stock is up 3.4% year-to-date.

Main Street Capital Corporation is a business development company (BDC) providing equity and debt financing to small and lower middle market companies. The Company invests in secured debt instruments, equity investments, warrants and other securities of U.S.-based companies. Its stock has a dividend yield of 7.6% on a payout ratio of 52%. The low payout ratio indicates that this BDC has more room to hike dividends in the future. The company has increased dividends by an average rate of 16% a year over the past three years. Main Street's stock is up 7.7% from the beginning of the year.

Baytex Energy Corporation is a conventional oil and natural gas company with operations in Canada and the United States. It boasts a dividend yield of 6.3%. The company's payout ratio of 113% is still well below the average ratio over the past five years. The company has raised dividends by 19% a year, on average, over the past three years. This year, in addition to an increase in the monthly dividend, the yield has been boosted by a 26.2% decline in the price of Baytex Energy's stock.

Shaw Communications is a Canadian diversified communications company providing broadband and telecommunications services in North America. The company has a dividend yield of 5.1% on a payout ratio of 64%. This communications firm has raised dividends by 15.6% per year, on average, over the past five years. The company's stock has a very low volatility relative to the broad market and is attractive on valuation relative to the industry and its 5-year averages.
Stock name Dividend Yield
Baytex Energy Trust 65.28
Armour Residential Reit 12.03
Prospect Capital 10.76
Permian Basin Royalty Trust 10.48
Student Transportation 7.07
Main Street Capital 5.69
Shaw Communications 4.44
Pengrowth Energy 3.99
Atlantic Power 3.66
Enerplus Resources Fund 1.26

Articles featuring Baytex Energy Trust (BTE):

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