3 stocks and ETFs that earn you money every month
Many companies pay quarterly or semi-annual dividends. However, some stocks and exchange-traded funds (ETFs) pay monthly dividends, which might appeal to retirees who need a steady income. Let’s take a look at three rock solid companies that will write you a check every month.
1. Real estate income: Dividend yield 4.2%
Real estate income (NYSE: O) is a commercial real estate company that owns more than 6,600 properties in the United States and the United Kingdom. She rents these properties to around 600 clients, including retail giants like Alliance of Walgreens boots, 7 eleven, and General dollar.
The company ended the first quarter of 2021 with an occupancy rate of 98%, even as many of its customers struggled throughout the pandemic. It deferred some rents last year, but its collection rate improved to 94.3% at the end of March.
As a REIT (Real Estate Investment Company), Realty Income must pay 90% of its taxable profits as dividends to maintain a favorable tax rate. His Adjusted Operating Funds (FFOs), which REITs commonly use to gauge their earnings, rose 2% to $ 3.39 per share in 2020. He expects that figure to rise 1.5% at 2.9% this year to reach $ 3.44 to $ 3.49 per share, easily covering its annual dividend term of $ 2.83 per share.
These monthly payments correspond to a forward dividend yield of 4.2%. Realty has paid dividends for 611 consecutive months (almost 51 years) and increased its dividend for 95 consecutive quarters (almost 24 years). Realty shares have remained almost stable over the past five years, but have generated a total return of over 220% after taking into account reinvested dividends. It is therefore also an excellent choice for long-term investors who do not need monthly payments.
2. Potential capital: Dividend yield 8%
Potential capital (NASDAQ: PSEC) is a business development company (BDC) that holds private debt and equity in 123 companies in 39 industries. This diversification allows it to offset downturns in some industries with growth in others, and it derives most of its profits from interest payments on its secured and unsecured debt.
Prospect has funded over 365 investments and manages over $ 6 billion in assets. Its net investment income (NII), a common measure of a BDC’s growth, fell 15% to $ 0.72 per share in fiscal 2020, which ended in last March, in a context of challenges linked to the pandemic. That number has remained stable year over year in the first nine months of 2021, but analysts expect it to hit $ 0.73 per share for the full year.
Prospect’s NII is expected to cover his annual forward dividend of $ 0.72 per share, which translates into a high forward dividend yield of 8%. Prospect does not increase its dividends every year, but its NII growth is expected to stabilize over the next several years as companies recover from the pandemic.
Like REITs, BDCs pay at least 90% of their taxable profits as dividends in order to maintain a lower tax rate. The Prospect share price has only risen by around 15% over the past five years, but it has generated an impressive total return of almost 110%.
3. BlackRock Enhanced Capital and Income Fund: 5.1% dividend yield
the BlackRock Enhanced Income and Capital Fund (NYSE: CII) is an ETF that holds a basket of 58 shares. Its main holdings include Alphabet, Microsoft, Amazon, and Apple.
Most of its major holdings pay low dividends or no dividends, so it may come as a surprise that the ETF pays monthly dividends that amount to a forward yield of 5.1%. He generates these dividends by constantly writing covered call options on his own positions.
For example, the fund may sell a covered call for Apple with a strike price of $ 150 and an expiration date of July 30. If Apple is still trading below $ 150 on that date, the call will expire and the fund will pocket the premium. But if Apple is trading at $ 200, it will have to sell its underlying stock for $ 150.
This approach may seem counterintuitive in a bull market, but it generates consistent gains when the market falls or stalls. Over the past five years, CII’s stock has grown by around 55%, but it has generated a total return of over 115% with its monthly dividends reinvested. This stable growth rate probably justifies its higher gross expenditure ratio of 0.91%.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.