2 stocks that make you a check every month
The only big problem with quarterly dividends is that their frequency makes it difficult to create a budget. This is why so many investors favor monthly pay stocks, which gets you pretty close to replacing a paycheck if you are retired and living on the income generated from your nest egg. There aren’t enough stocks with monthly dividends, but this pair of companies is attractive enough, albeit at opposite ends of the risk spectrum.
1. Play it safe
Stock n ° 1 here, Real estate income (NYSE: O), is actually called “The Monthly Dividend Company”. It is a real estate investment trust that owns a huge portfolio (over 6,500 properties) of net single tenant rental assets. And he just signed an all-stock deal to buy a par that will bring that number to over 10,000. He will be the undisputed king of the net rental industry.
The net lease is an attractive space that is generally viewed as a fairly low-risk way of owning property. This is because tenants are responsible for most of the operating costs of the properties they occupy. This leaves REITs like Realty Income – greatly simplifying things – to sit down and collect the rents. It differentiates between its cost of capital and the rents it receives, which is why size is so important here. Realty Income can spread its costs over a large portfolio and with a good balance sheet it has low debt costs.
Add to that over 25 years of annual dividend increases (which makes Realty Income a dividend aristocrat), and the stock generally trades at a premium price. The dividend yield, at 3.9%, is at the lower end of the REIT’s historical yield range. But it does mean that raising capital through the sale of stocks is cheap, so this negative point is not as bad as it seems. With a solid company, a long history of success, and a solid position in the industry going forward, conservative types might find that paying for this monthly pay giant is worth the price of admission.
2. Out on a limb
The next name here, Canada’s Pembina pipeline (NYSE: PBA), operates in the underprivileged energy sector. Given the global pressure to reduce the use of carbon-based fuels, this alone could discourage investors. But if you can handle some uncertainty, it’s worth taking a closer look at this monthly-paying mid-market company and its big 6.4% dividend yield. This is because Pembina does not do any drilling or oil and gas; it helps move these fuels and the products they are transformed into, using a business model largely based on fees. The demand is more important than the prices of raw materials.
The key here is to recognize that as the world transitions to cleaner fuels, the change will take years. In fact, Pembina expects demand for cleaner-burning oil and natural gas to increase through 2040, almost two decades from now. This foreshadows a still strong demand for its services for a very long time. To emphasize this point, volumes in Pembina’s systems are already higher than they were before the coronavirus pandemic and have temporarily reduced energy demand.
With a top-quality credit rating, a stable monthly dividend, and a strong business, Pembina might not be as risky as it sounds. Just take a step back and see the big picture. That’s not to say that there isn’t any risk or that clean energy isn’t a growing and important issue to watch out for, just that it seems like there is plenty of time to take advantage of it. Pembina cash cow middleman business if you like collecting big monthly dividend checks.
Your next steps
Obviously, these are just quick sketches of two attractive monthly dividend stocks. If one or both of them seem attractive, you should consider investing in them. Although a bit pricey, Realty Income is suitable for even the most conservative dividend investor. Pembina needs a stronger stomach because of the industry it operates in, but if you can see that clean energy isn’t going to be an overnight sensation, then it might be worth an investment, too.
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 heterogeneous! 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.