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As we continue our back-to-basics look at key components of personal finance and investing, The Juice considers dividend frequency. That’s how often a company pays a dividend. This matters mostly if you’d like to regularly reinvest or live off of dividend income.
By the end of today’s Juice, you’ll know two ways to collect monthly dividend income.
2 Easy Ways to Make Monthly Dividend Income
In most cases, companies pay their dividends quarterly. When you pull up a stock quote, you might see a dividend of $1.00 listed. Generally, this is the annual dividend payment that goes out in quarterly payments of $0.25.
You might also see a record date when researching dividends. This means that all shareholders on record as of that date are eligible to receive the next dividend payment. Because it typically takes around two days for stock transactions to clear in your account, you need to buy ahead of the record date to ensure you get the next quarterly dividend.
From time to time, a company will pay a special, one-time dividend. You can’t predict these. But they can be super lucrative.
Costco (COST) is known for special dividends. In addition to its regular quarterly dividend (which is currently a sweet $0.90), the company paid a one-time dividend of $10 per share (you read that right) in December 2020.
If you owned 100 shares of COST, you would’ve gotten $1,000 to collect as cash or reinvest in new shares of Costco stock. Costco also issued a one-time $7 dividend in 2012, followed by a $5 payment in 2015 and another $7 in 2017.
Costco isn’t alone. Wingstop (WING) has paid four special dividends since its IPO. The latest was $4 per share in March 2022.
Apart from the typical quarterly payment and special, one-time payouts, some companies pay monthly dividends.
Realty Income (O) actually calls itself “The Monthly Dividend Company.” It’s a real estate investment trust (REIT) that invests in commercial properties in the U.S., Spain, and the U.K.
You likely know Realty Income’s tenants very well:
Source: Realty Income
The above is just a sampling.
The IRS requires REITs to pay 90% or more of their taxable income to shareholders via a dividend. Therefore, a high payout ratio (which we covered in the February 15 Juice) doesn’t warrant caution with REITs in the same way it does other stocks. Things get technical when you get into REITs and payout ratio beyond the IRS reg, but we’ll save that story for another Juice.
For today, just know that Realty Income’s stock has returned roughly 36.7% over the last five years, and its dividend yields 4.6%. The Juice likes it not only for the monthly income, but for its diversified portfolio of relatively stable and reliable tenants.
As for other monthly dividend stocks, many are in real estate. Many are REITs. Sure Dividend offers access to a regularly updated list here. One thing you’ll notice on that list is a lot of high dividend yields. As we noted earlier this month, this can be a red flag.
The other way to collect monthly dividend income is to simply purchase stock in companies that pay out on different monthly schedules.
Of course, you can structure things in any number of ways.
The Bottom Line: Dividends can be a lucrative source of income. You can reinvest dividends into new shares of stock to boost your position size and potentially enhance returns. You can also collect dividend payouts as cash income and do with that money as you see fit.
In addition to keeping an eye on payout ratio and dividend yield, don’t forget you’ll most likely have to pay taxes on your dividend income. How much typically depends on the federal income tax bracket you fall into. This is something we’ll cover later this month as we continue our back-to-basics look at personal finance and investing.
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