What Are Monthly Dividend Stocks?

There’s a good chance you’ve never heard of the company that markets itself — at least to investors — as The Monthly Dividend Company. 

When you go to Realty Income’s (O) website, that’s the first thing you see. A graphic set over a series of images of retail outlets you certainly have heard of. 

Realty Income is a real estate investment trust (REIT). If you don’t know what a REIT is, refer to a previous installment of The Juice — What Is A REIT?  

When we discuss monthly dividend stocks, it’s important to know what a REIT is because a significant chunk of monthly dividend payers are REITs. 

Here’s how Realty Income describes itself at its website:

Realty Income, an S&P 500 company, is real estate partner to the world’s leading companies … We are known as “The Monthly Dividend Company®,” and have a mission to deliver stockholders dependable monthly dividends that grow over time. Since our founding, we have declared 646 consecutive monthly dividends and are a member of the S&P 500 Dividend Aristocrats index for having increased our dividend for the last 25 consecutive years.

Sounds attractive. Until you do just a tiny bit of digging. Digging we’ll briefly do to help define monthly dividend stocks and determine if they can make sense for you. 

It’s no surprise that Realty Income is the retail REIT investors search for most across our 100+ financial media partners as measured by our proprietary sentiment indicator, Trackstar. 

The company makes an alluring pitch that resonates with investors. Especially investors who seek consistent income. 

And you know the brands who lease space from Realty Income. They range from Starbucks (SBUX) to Taco Bell and Wynn Resorts (WYNN) to Home Depot (HD) along grocery stores, convenience stores and other spaces. Realty Income has a huge domestic presence and growing international presence in the retail property space. 

The Juice likes Realty Income’s business, but we can’t say the same for the stock, even with a monthly dividend. 

It’s true. If you own O, you’ll receive a dividend payout that you can take as cash or reinvest every single month. 

For example, if you were a shareholder of record last month, Realty Income would have distributed a $0.2570 per share dividend payment. So, on 100 shares of the stock, that’s $25.70 worth of income. Extrapolate that out to a year and 100 shares of O generates at least $308.40. We say at least because this does not take into account dividend reinvestment and dividend growth. 

While not all REITs do this, as indicated, many do. In fact, three (Realty Income, Agree Realty Corp (ADC) and EPR Properties (EPR)) of the five most popular retail REITs pay out on a monthly basis. 

That’s fantastic. But here’s the downside. 

Realty Income stock is basically a dog. Woof woof. It’s down about 8% YTD, 12% over the last year and 21% over the past fives. All else equal — as in, not factoring in dividend growth and investment — 100 shares of O purchased five years ago has lost roughly $1,450 in value. 

Does around $300 in annual income make up for that? Technically — mathematically — we guess it does. Sort of. Kind of. But not really. 

To check ourselves we calculated the total return. With dividends reinvested over the last five years. 

If you put $10,000 into O and reinvested dividends monthly, your $10,000 is worth about $9,885.47 today. If you did likewise with the S&P 500, your $10,000 investment would be worth around $18,610.73. So, we’re talking basically flat in O versus an annual average return of more than 13% in the S&P 500. 

It doesn’t take a mathematician to figure out the better investment. 

Similar stories in ADC and EPR. Run the same numbers and the former is up just over 1% annually over five years and the former is down approximately 7%. 

We could list examples all day long, but that would miss the point. 

It doesn’t make a ton of sense to invest on the basis of a monthly dividend payment alone. If you want monthly income, you’d be better off buying a basket of dividend stocks that pay on different quarterly schedules and staggering things so you receive payouts 12 months out of the year. We’ll show you how to do that soon in a future Juice. 

And, really, unless you’re at the stage of really diversifying your portfolio — completing or rounding things out — you want to invest in solid companies first, regardless of dividend payments. As we noted yesterday, Nvidia (NVDA) pays a meager dividend, but you know how well the stock has performed. 

The Bottom Line: All of this said, there comes a time to look for high yields (we love high yields at The Juice!) and consistent income (we love this just as much). 

If you can find these two things alongside a stock that’s poised to appreciate amid strong growth at the company, you have found the holy grail of investing. Dividend growth or otherwise.

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