The following is an excerpt of a piece I wrote for InvestorPlace:
The second half of 2016 was not kind to income investors. As bond yields rose, the prices of virtually everything paying an income stream got slammed. Some of my favorite dividend stocks, REITs and closed-end funds fell by 20% or more… at a time when the broader stock market was rallying.
That’s frustrating, to say the least. But if you’re investing for retirement, short-term price moves really don’t matter all that much. Earning a regular stream of income is far more critical.
But even here, your dividend stocks are generally misaligned with your actual cash needs. Most dividend stocks pay quarterly, and most bonds pay semi-annually. Yet your regular expenses — everything from your mortgage to the mobile phone bill — tend to be monthly.
This is where monthly dividend stocks come in handy. Monthly dividend stocks align your income with your expenses, making it a lot easier to plan out your life. And after the general bloodletting we’ve had among defensive, dividend-paying names over the past few months, some of my favorite monthly dividend stocks are finally reasonably priced again. Most were prohibitively expensive as recently as late summer.
Some would dismiss a monthly payout as a gimmick designed to impress mom and pop investors, but I would disagree completely. To me, a monthly dividend is a sign of a management team that takes its investors seriously and makes a real effort to do what is best for them.
This is an eclectic list, covering everything from traditional brick-and-mortar REITs to leveraged closed-end bond funds. But all have one thing in common: They pay a reliable monthly dividend.
You can’t have a list of monthly dividend stocks without “the Monthly Dividend Company” itself, conservative retail REIT Realty Income Corp (O). Realty Income has paid its dividend like clockwork for 556 consecutive months and counting. Importantly, it’s raised that dividend for 76 consecutive quarters and has shown no indication of slowing down. Since 1994, the company has raised its dividend at a 4.6% annual clip.
Realty Income is not a bond. It’s obviously a stock. But in terms of stability and safety, it’s about as close to a bond as you can realistically get in the stock market. The REIT owns a portfolio high-traffic retail properties that are mostly recession proof, and importantly, internet proof.
With Amazon.com (AMZN) and its peers quickly making physical stores irrelevant, you have to worry about the long-term viability of a lot of properties. But a typical Realty Income property would be your local pharmacy or convenience store, the sorts of properties that e-commerce won’t replace any time soon. And its base of over 4,700 properties is spread across 247 tenants in 49 states and Puerto Rico, with its largest tenant accounting for just 7.3% of total rent.
At current prices, Realty Income yields about 4.4%, which is nearly 2% higher than the yield on the 10-year Treasury. But unlike that Treasury coupon, which will never rise, Realty Income’s dividend will likely continue to rise every year.
Disclosure: As of this writing, I was long O.