11 best monthly dividend stocks and funds to buy

Your bills come monthly. Why not your dividend checks? These are some of 2021's best monthly dividend stocks and funds for easier income planning.

  • By Charles Lewis Sizemore,
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So much has changed over the past year. We survived a pandemic, and life is quickly returning to something resembling normal. Or at least a "new normal."

But while so much has changed, one thing remains unquestionably the same: We still have bills to pay, and the vast majority of those bills come on a monthly schedule.

This is where monthly dividend stocks come into play.

Most dividend stocks pay quarterly, and most bonds pay semiannually. But monthly dividend stocks and funds have a payment schedule that actually aligns with your mortgage payment, utility bills and other monthly charges.

"We'd never recommend buying a stock purely because it has a monthly dividend," says Rachel Klinger, president of McCann Wealth Strategies, an investment adviser based in State College, Pennsylvania. "But monthly dividend stocks can be a nice addition to a portfolio and can add a little regularity to an investor's income stream."

Today, we're going to look at 11 of the best monthly dividend stocks and funds to buy for the second half of 2021. You'll see a few similarities across the selection. Monthly payers tend to be concentrated in real estate investment trusts (REITs), business development companies (BDCs) and closed-end funds (CEFs). Many also tend to boast extremely high yields that are several times greater than the market average.

In a market starved for yield, that's certainly welcome.

This list isn't particularly diversified, so it doesn't make a comprehensive portfolio. In other words, don't completely overload your portfolio in stocks that pay monthly dividends. But they can fill an important niche by delivering a little income stability, so read on to determine which of these monthly payers best align with your investment tastes.

Data is as of May 24. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price. Fund discount/premium to NAV and expense ratio provided by CEF Connect.

Realty Income

  • Market value: $25.5 billion
  • Dividend yield: 4.1%

You can't have a list of monthly dividend stocks and not include Realty Income (O). While several REITs pay monthly dividends, this company's monthly payout is so critical to its identity that it actually trademarked the "The Monthly Dividend Company" as its official nickname.

At current prices, Realty Income yields about 4.1%, which is attractive in a world in which the 10-year Treasury yields only 1.6%. But it's the consistency that makes the stock so compelling as a long-term income play. As of this writing, Realty Income has made 610 consecutive monthly dividend payments and has raised its dividend for 94 consecutive quarters. And since its initial public offering (IPO) in 1994, the dividend has grown at a compound annual growth rate of 4.4%, well ahead of inflation.

Realty Income didn't have a particularly easy 2020, as its top tenants included gym chains LA Fitness and Lifestyle Fitness, as well as movie theater chains AMC Entertainment (AMC) and Regal Cinemas. But the company not only survived an awful time for retail – its diversification and discipline actually allowed it to thrive and keep its streak of dividend hikes alive.

Most of America is now open with few remaining COVID restrictions. And as the economy comes back to life, Realty Income's tenants will be in much better shape financially. That bodes well for future dividend hikes.

In the meantime, you can pick up one of the best monthly dividend stocks for 2021 at 2016 prices.

LTC Properties

  • Market value: $1.6 billion
  • Dividend yield: 5.8%

The pandemic also was unkind to fellow monthly dividend REIT LTC Properties (LTC). LTC is a landlord specializing in senior living properties and skilled nursing facilities, with its portfolio split about evenly between those two segments.

LTC has to be happy to see the pandemic winding down. If there was one corner of the economy that got slammed harder than even restaurants and bars, senior living and nursing homes would be it.

We will never know the real number, but it's safe to assume that a significant number of would-be senior tenants opted to postpone moving into a senior living property or nursing home over the past year due to virus fears. It will take time to convince these seniors to give it another try.

But it's also important to remember that this too will pass, and the longer-term demographic trends here are great. The peak of the post-war baby boom was the late 1950s to early 1960s. These boomers are just in their early-to-mid-60s today, far too young to need long-term care. But the front end of the generation is getting there. Demand will continue to build over the next several decades as more and more boomers enter long-term care facilities.

In the meanwhile, you can enjoy nearly 6% from this high-yield monthly dividend stock.

Stag Industrial

  • Market value: $5.7 billion
  • Dividend yield: 4.1%

Not all REITs have had a rough stretch. Some did just fine during the pandemic, and in fact saw demand for their properties increase.

As a case in point, look at Stag Industrial (STAG), a leader in light industrial and logistical properties such as distribution centers. STAG is a glitzy new-economy landlord disguised as a stodgy, old-economy one. Approximately 40% of its portfolio handles e-commerce activity, and Amazon.com (AMZN) is its single biggest tenant.

We all know that Amazon is taking over the world. We might as well profit from that trend by being Jeff Bezos' landlord.

Stag has a long runway for growth. Even after a massive jump in 2020 due to the COVID pandemic, only about 14% of all retail sales today are from e-commerce. And the logistical space is highly fragmented. Stag's management estimates the value of their market at around $1 trillion, with their firm making up only about 0.5% of that.

This isn't a stock you'll get rich quick owning. But that's not the point. If you're looking for a safe stock to own for the next decade or more, STAG could be one of the best monthly dividend stocks to buy in 2021. It's a small, conservatively financed company in a large and growing market. And it pays a nice monthly dividend of over 4%. Not too shabby.

Dynex Capital

  • Market value: $604.0 million
  • Dividend yield: 8.0%

Mortgage REITs (mREITs) are usually a sleepy corner of the market. They invest in mortgage bonds and other mortgage securities, juice the returns a little with leverage, then pass on the proceeds to their investors in the form of high dividends.

Well, that model came under major stress last year when it looks like the world was ending. The credit markets froze, liquidity in the bond market froze up, and suddenly many mortgage REITs found themselves in the uncomfortable position of having to sell otherwise high-quality, performing assets at fire-sale prices to meet margin calls.

Even high-quality operators like Dynex Capital (DX) saw their shares go on a roller coaster ride. The shares lost nearly two-thirds of their value last year, though they've since gained it all back and more.

It's not unreasonable to expect the shares to continue to push higher in 2021. Dynex's portfolio is 95% invested in agency mortgage securities, which is what the Federal Reserve itself buys.

In a low-interest-rate world, investors are likely to flock to mortgage REITs in 2021. And DX, as one of the highest paying monthly dividend stocks at a cool 8%, looks particularly juicy.

Main Street Capital

  • Market value: $2.8 billion
  • Dividend yield: 6.0%

Main Street Capital (MAIN) is a best-in-class business development company based in Houston, Texas, that provides equity and debt capital to smaller and middle-market firms. The average size of a portfolio investment is just $13 million. These are companies that have outgrown their local bank or the U.S. Small Business Administration (SBA) but are nowhere near large enough to access Wall Street directly. They need a middleman like MAIN to step in and provide the capital they need to grow.

It's a little ironic that we're buying something called "Main Street" given that the proverbial Main Street is still recovering from a year of lockdowns. Small service businesses have really had a difficult time navigating the stay-at-home economy.

But Main Street Capital has done a fine job of keeping its head above water during one of the most difficult stretches in U.S. history, and as the world continues to get back to normal, its portfolio companies should only get stronger.

Main Street has an interesting model in that it pays a relatively modest monthly dividend, but then tops up that payout twice per year with special dividends. This is a smart, conservative strategy, as it prevents MAIN from having to cut its regular payout when times get tough – like in 2020, which saw Main Street Capital pay out no special dividends.

That's OK. They'll be back. In the meanwhile, MAIN's regular monthly dividend still works out to a generous 6.0%.

Prospect Capital

  • Market value: $3.2 billion
  • Dividend yield: 8.6%

Along the same lines, we have fellow BDC Prospect Capital (PSEC).

Like MAIN, Prospect Capital provides financing to middle-market companies. Its portfolio is mostly debt-based, with 80% of it invested in first-lien loans and other senior secured debt. It's also well diversified, as its portfolio is spread across more than 120 companies in 39 industries. Despite a rough year, non-accrual loans remain a very modest 0.7% of the portfolio, and that's likely to improve as the economy continues to heal.

Prospect Capital tends to be a little more aggressive in its dividend policy. Rather than manage the payout with semiannual special dividends like MAIN, Prospect chooses to simply pay a higher regular monthly dividend. This has gotten the company into trouble a few times, as it has had to cut its dividend twice in past decade.

Prospect's shares have been shooting higher in 2021 but still trade at just 88% of book value and yield a hefty 8.6%. So it at least looks like PSEC has more runway to go.

We can say one thing about PSEC's management team: They eat their own cooking. CEO John Barry is a serial buyer of his company's shares and has accumulated over 69 million shares over the years, nearly 31 million of which he picked up last year. Whatever decisions management makes, you can't say they don't have skin in the game.

Gladstone Capital Corporation

  • Market value: $369.1 million
  • Dividend yield: 7.1%

For one final monthly-paying business development company, take a look at Gladstone Capital (GLAD).

Gladstone Capital was formed in 2001 and was one of the first BDCs formed with the express purpose of making loans to smaller middle-market companies.

While Gladstone Capital is itself rather small, with a market cap of roughly $370 million, the firm is part of the much larger Gladstone Companies family, which includes Gladstone Land (LAND), Gladstone Investment (GAIN) and Gladstone Commercial (GOOD). Collectively, the Gladstone family of companies manages about $3 billion in assets.

GLAD's portfolio is well diversified, spanning 47 companies in 18 industries. The overall allocation is conservative, with 92.5% of the portfolio in loans secured by collateral, 48.6% of which are first-lien loans. The largest chunk of the portfolio, at 22.3%, is invested in diversified services companies, while another 17.4% is invested in healthcare, education and childcare.

Gladstone Capital also is one of the highest-paying monthly dividend stocks on this list, yielding a supple 7.1% at current prices.

DoubleLine Yield Opportunities Fund

  • Assets under management: $1.2 billion
  • Distribution rate: 7.1%*
  • Discount/premium to NAV: -3.5%
  • Expense ratio: 1.86%

If you prefer more diversification than individual monthly dividend stocks, several funds fit the bill, too.

Jeffrey Gundlach is one of the greatest bond investors of his generation, and arguably, in history. As early as 2011, Barron's dubbed him "The King of Bonds." Among His Majesty's accomplishments are correctly calling the 2007 housing market crash and launching DoubleLine Capital, a money manager with more than $135 billion under management.

The DoubleLine Yield Opportunities Fund (DLY) is a closed-end fund run by Gundlach and his team, and it is very much a go-anywhere, do-anything fund with a broad mandate. If you like Gundlach and his research, DLY is a good way to get access.

DoubleLine Yield Opportunities has a quirky portfolio. About 61% of the portfolio is invested in U.S. bonds with most of the rest invested in emerging market debt. The emerging markets exposure is the most interesting aspect of this pick. As the world continues to inch back toward normal in 2021, emerging markets securities should benefit. And in DLY, we have access to those markets while we collect the 7% monthly dividend.

DLY isn't your typical closed-end fund. Unlike most CEFs, which are presumed to last forever, this one has a limited term. Management intends to terminate the fund in February 2032. If you have experience with CEFs, you know why that matters. These funds tend to trade at discounts to net asset value. By having a firm termination date, management ensures that investors can get out of the fund at full net asset value when the time comes.

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

Tortoise Essential Asset Income Term Fund

  • Assets under management: $260.8 million
  • Distribution rate: 6.1%
  • Discount/premium to NAV: -13.9%
  • Expense ratio: 2.33%**

Tortoise Essential Asset Income Term Fund (TEAF) is a CEF that is uniquely positioned to do well in 2021 and beyond.

TEAF has a collection of assets that you wouldn't normally expect to see bundled together, though they do have a common theme. The fund invests in tangible, long-lived assets it deems to be "essential," or indispensable to the modern economy. Tortoise breaks these essential assets into three subcategories: social, sustainable and energy infrastructure.

Social infrastructure includes things such as education, housing and senior living facilities. Energy infrastructure is mostly midstream pipelines, though this subcategory also includes exploration and production companies. It's the sustainable infrastructure that is particularly interesting because it fits perfectly with the Biden administration's green mandate. This would include investments in wind, solar and other renewable energy assets.

We can't know for sure what 2021 will bring, but it's safe to assume that we'll see a lot more government spending on infrastructure in general and green infrastructure in particular.

TEAF is quirky. As was the case with DLY, it's not a typical closed-end fund but rather a "term fund," meaning it is designed to liquidate at net asset value in about 10 years.

The fact that TEAF liquidates at net asset value means that, apart from the attractive 6.1% yield, paid monthly, we're very likely to enjoy respectable capital gains. At current prices, TEAF trades at a discount to net asset value of nearly 14%.

** Includes 1.44% in management fees, 0.66% in other expenses and 0.23% in interest expenses.

BlackRock Municipal 2030 Target Term

  • Assets under management: $2.9 billion
  • Distribution rate: 2.9%
  • Discount/premium to NAV: -4.6%
  • Expense ratio: 1.56%**

Let's round out the term CEFs with one final addition, the BlackRock Municipal 2030 Target Term Fund (BTT).

As a municipal bond fund, the main selling point of BTT is its tax-free income. The interest paid is exempt from federal income tax. And apart from the U.S. federal government, which is one true "risk free" rate, muni bonds are one of the very safest asset classes you can own. Cities and counties have gone bankrupt, of course, and there will no doubt be future failures. But you can mostly eliminate default risk simply by diversifying.

And that's where BTT excels. The fund's large multibillion-dollar portfolio was spread across 599 holdings as of March 31, 2021, and its largest single holding made up only 3.6% of the portfolio. The largest allocation to any single state is a very reasonable 13.3%, and the state in question is the credit-worthy Commonwealth of Pennsylvania.

With a dividend yield of just 2.9%, you're not exactly getting rich in BTT. But remember: That payout is tax-free.

** Includes 0.62% in management fees, 0.05% in other expenses and 0.89% in interest expenses.

Vanguard Short-Term Corporate Bond ETF

  • Assets under management: $46.5 billion
  • SEC yield: 0.8%***

In a bull market, cash is trash. Of course, bull markets don't last forever, and we don't know how the market will finish in 2021.

Sometimes it pays to "go to cash" or cash equivalents with at least a little of your portfolio. It reduces your portfolio volatility and, importantly, gives you the ability to buy dips as they happen.

This brings us to the Vanguard Short-Term Corporate Bond ETF (VCSH). VCSH owns a portfolio of short-duration corporate bonds with maturities between one and five years. At time of writing, the average maturity of VCSH's holdings was three years.

You won't find junk in VCSH. This is an investment-grade bond ETF with 51.8% of its portfolio in bonds rated A or higher and 48.2% in bonds rated BBB.

Annualizing the most recent monthly dividend gives us an expected dividend yield of just shy of 1.6%. You're not getting rich on that, of course, but it looks downright juicy given the relatively low risk and today's barren interest-rate environment.

VCSH is a good candidate for the portion of your portfolio you would normally keep in cash or short-term bonds. While not as safe as Treasuries, it's a high-quality bond portfolio – one not likely to take serious losses in a bear market.

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

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