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7 Top Monthly Dividend Stocks and Funds to Buy

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The mortgage is due every month. So are utility bills, car payments and the membership to the gym that many of us don't actually use.

That's not a major problem for many people because they get regular paychecks. But when they eventually retire, it would be nice to at least partially match income to their expenses.

Enter monthly dividend stocks. While bonds generally pay twice per year and most American stocks pay quarterly, a few select few stocks, exchange-traded funds (ETFs) and closed-end funds (CEFs) pay monthly, making them ideally suited for retirees living off their investments.

Naturally, you should be skeptical of gimmicky stocks, and you should never buy a stock simply because it pays a monthly dividend. Any investment you buy should meet your basic smell test for quality and should be attractively priced.

Thankfully, plenty of monthly dividend stocks make the cut. Today, we're going to take a look at a diverse lot of seven monthly payers. Three are high-quality real estate investment trusts (REITs), two are conservative ETFs, one is a dirt-cheap CEF and one is a more speculative business development company (BDC) trading at a deep discount. But all have one thing in common: They pay their dividends monthly.

SEE ALSO: 50 Dividend Stocks You Can Count On

Realty Income

Market value: $14.5 billion

Dividend yield: 5.0%

Perhaps no other company is more associated with a rock-solid monthly dividend than triple-net retail REIT Realty Income (O, $51.14). If fact, the company calls itself "The Monthly Dividend Company" and even had that name trademarked.

A quick personal disclosure: I have said publicly many times that I own shares of Realty Income that I will never sell. I intend to reinvest the dividends until I eventually retire, at which point I expect they'll pay a decent bit of bills. And I intend to pass them on to my children someday. Here's why:

Realty Income is a pillar of stability. It has made 573 consecutive monthly payments (and counting!) and has raised its dividend for 82 straight quarters, including a payout hike announced in mid-March.

Yes, American retail real estate is overbuilt, particularly in the age of Amazon.com (AMZN) and other online retailers. But Realty Income tends to own the kinds of properties that are "Amazon-proof," or at least as close to Amazon-proof as you can get: convenience stores, gyms, theaters, etc.

The REIT owns a portfolio of more than 5,100 properties in 49 states plus Puerto Rico, and its top tenants are Walgreens (WBA), FedEx (FDX) and LA Fitness. No tenant makes up more than 6.5% of the portfolio, and no single industry makes up more than 11%.

If you're looking for worry-free monthly income, Realty Income is a stock you should own. And with the recent spike in bond yields putting pressure on REIT prices, you can pick up shares today at 2015 prices - a rarity in today's market.

SEE ALSO: 20 of the Best Stocks You Probably Haven't Heard Of

EPR Properties

Market value: $4.2 billion

Dividend yield: 7.3%

Certain "oddball" dividend payers don't have a built-in base of buyers or that institutional investors tend to avoid because they don't fit nicely into a style box. This tends to make them perpetual value stocks.

One such quirky stock is EPR Properties (EPR, $56.78), a REIT that specializes in entertainment and educational properties.

Most REITs specialize in broad categories of real estate, such as offices or apartments. EPR's specialty is far narrower. Forty-four percent of its portfolio is invested in entertainment properties, primarily movie theaters. Another 32% is invested in recreational properties, such as TopGolf driving ranges and ski resorts. And 21% of the portfolio is invested in educational properties such as charter schools and daycare centers. It's an eclectic mix you're not going to find anywhere else.

EPR Properties also sports a high yield that you're unlikely to find anywhere else without taking a lot more risk. EPR boasts a 7.3% dividend at the moment, and it has grown its payout at about 7% per year since 2010.

REITs have gotten absolutely thrashed over the past year, and EPR is no exception. Its stock has lost more than a quarter of its value in less than a year, and the selloff might not even be over yet. But at today's prices, expect EPR to deliver solid, market-beating returns over at least the next five years.

SEE ALSO: The 15 Best REITs to Buy for Retirement Income

LTC Properties

Market value: $1.5 billion

Dividend yield: 5.8%

Let's add one more solid REIT into the mix: senior housing and health REIT LTC Properties (LTC, $39.09).

"LTC" is short for "long-term care," and the business is exactly what that suggests. Its portfolio consists of 105 assisted living facilities, 96 skilled nursing facilities and a handful of other senior housing properties. The REIT also provides mortgage financing to properties in the senior living and health sectors.

LTC Properties has powerful demographic tailwinds at its back due to the aging of the Baby Boomers. By 2030, there will be more Americans over the age of 65 than children, according to Census Bureau projections.

But while the long-term demand picture looks great, shorter-term worries have weighed on LTC and its peers. Skilled nursing facilities tend to be highly dependent on Medicaid, and the government has been getting stingier with its reimbursements. This has forced a couple high-profile operators into bankruptcy, and it has cast a pall over landlords serving the business. LTC is no exception, down nearly 30% from its 2016 highs.

Still, LTC yields nearly 6% at current prices, and the REIT has raised its monthly dividend every year since 2009. Use recent price weakness as a buying opportunity.

SEE ALSO: Kiplinger's Special Report on REITs

PowerShares Preferred Portfolio

Market value: $5.2 billion

SEC yield: 5.7%*

Expenses: 0.51%

Finding high yields in the bond market can be a challenge unless you're willing to accept the risk of junk bonds. But preferred stock can be a solid, high-yielding substitute for those investors willing to look beyond the standard fixed-income options.

Preferred stock is a hybrid security. Like bonds, preferreds pay a fixed payout that must be paid before the company can pay dividends to its common shareholders. However, unlike bond coupons, the failure to make a dividend payment does not constitute a default (though the company is generally required to pay back any missed preferred dividends before it can pay common dividends). Also, preferred stock often is perpetual in nature, whereas bonds generally have a fixed maturity date.

"80% of our clients are in or fast approaching retirement, and our single most important responsibility is finding quality sources of reliable income," says Chase Robertson, CEO of Robertson Wealth Management, a Houston-based RIA serving 3,500 families globally. "We've done well by our clients by focusing on non-traditional income sources such as preferred stock, which is what I like to call 'debt dressed up like equity.' The higher yields available in our Preferred Portfolio have been enough to give many of our clients a much more comfortable retirement."

The PowerShares Preferred Portfolio (PGX, $14.70) is one way to get diversified exposure to a basket of preferred stock. This ETF invests almost exclusively in preferred stock issued by banks, so it's somewhat concentrated in that respect. But its exposure to any single bank's preferreds will generally be less than 3%.

At current prices, the ETF yields an attractive 5.7%.

SEE ALSO: 15 Great ETFs for a Prosperous 2018

*SEC yield reflects the interest earned after deducting fund expenses for the most recent 30-day period and is a standard measure for bond and preferred-stock funds.

iShares Core U.S. Aggregate Bond ETF

Market value: $54.2 billion

SEC yield: 2.7%

Expenses: 0.05%

Bond bulls are about as rare today as mythical unicorns. But there still may be upside in the fixed-income market.

Bond prices may not go materially higher from here (which would mean bond yields going materially lower). Prices are simply too high today for that to be possible. But bond yields aren't likely to shoot much higher from here, either, given the lack of significant inflation pressures and the high demand for fixed income. The most likely scenario is simply that bonds move sideways for a few years, trading in a range.

And in the short-term, bonds might actually be a good trade.

"I've often noted that a flattening yield curve could signal trouble ahead for the economy," says Lance Gaitan, editor of bond-trading advisory Treasury Profits Accelerator. "And when long-term yields go lower than short-term yields, or invert, the economy will fall into a recession. Currently, it's not close to inverting, but it's definitely getting flatter. That's worrisome. In fact, every recession since 1955 has been preceded by a negative spread between the 10-year Treasury note and the one-year Treasury bill. If that happens, owning bonds today will pay off handsomely."

For broad exposure to the bond market - and a nice monthly payout to boot - consider the iShares Core U.S. Aggregate Bond ETF (AGG, $106.71). This low-cost index fund invests in a basket of more than 6,650 different debt offerings. It's most concentrated in U.S. Treasuries at more than a third of the fund's assets, but it also has exposure to mortgage-backed security pass-through debt and investment-grade corporate debt, among other bonds.

It's not a particularly high yielder, at 2.4%. But it should give your portfolio a little stability in the event that we see more market volatility this year.

SEE ALSO: The 10 Best Vanguard ETFs for a Dirt-Cheap Portfolio

Eaton Vance Limited Duration Income Fund

Market value: $1.5 billion

Distribution rate: 7.4%*

Expenses: 1.32%

Closed-end funds are a nice fishing pond for investors hunting for monthly dividends.

If you're unfamiliar with the asset class, closed-end funds (CEFs) are mutual-fund-like products, but they trade on the New York Stock Exchange like stocks. However, they shouldn't be confused with ETFs like PGX or AGG. CEFs are a very different animal.

ETFs generally track an index benchmark and will always trade at or very close to net asset value. That's because, when prices occasionally deviate, institutional investors can force the price back into line by creating or destroying shares.

CEFs don't allow for that. Their share count tends to be fixed, so their prices often drift far from their net asset value. If you are patient and bide your time, you can often buy a dollar's worth of quality stocks and bonds for 90 cents or even less.

This brings me to the Eaton Vance Limited Duration Income Fund (EVV, $13.06), which owns a portfolio of bank loans, asset-backed securities and other assorted bonds. Much of the fund's portfolio is invested in floating-rate securities, which limits its sensitivity to interest rates. If I'm wrong about bond yields trading sideways and they instead go higher, EVV should escape mostly unscathed.

EVV trades at a fat 11.5% discount to its net asset value and yields an attractive 7.4% - a distribution that this CEF pays monthly.

SEE ALSO: 10 Funds That Can Beat the Market for Another Decade

*Distribution rate can be a combination of dividends, interest income, realized capital gains and return of capital, and is an annualized reflection of the most recent payout. Distribution rate is a standard measure for CEFs.

Prospect Capital

Market value: $2.4 billion

Dividend yield: 13.1%

Investors should love the fact that business development company (BDC) Prospect Capital (PSEC, $6.55) trades for just 71% of book value and that it yields a whopping 13%. They also should love its monthly dividend payment.

However, investors have every right to hate the fact that management habitually pays too high a regular dividend, then subsequently is forced to cut it.

Prospect would be well-advised to follow the lead of some of their peers, such as Main Street Capital (MAIN), and pay a more modest monthly dividend that is periodically topped up with special dividends as cash flows allow. Doing so would do wonders for investor morale ... and likely close that that yawning discount to book value.

PSEC nonetheless is an interesting value at today's prices. Historically, whenever the stock has dropped to below 80% of book value, its shares have delivered respectable total returns over the following 18 months. Just note that this is by far the most aggressive play among all the monthly dividend stocks and funds listed today.

SEE ALSO: 10 Warren Buffett Stocks With the Fastest-Growing Dividends

Charles Sizemore was long EPR, EVV, LTC, O, PGX and PSEC as of this writing.

EDITOR'S PICKS

Copyright 2018 The Kiplinger Washington Editors

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