11 best monthly dividend stocks and funds for 2021

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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We're now in the final weeks of what has been the strangest year in living memory. But while so much has changed in 2020, 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."

2021 will hopefully look a lot different than 2020. With a COVID vaccine expected to be broadly available within a few months, we should see life returning to something a little closer to normal. All else equal, this should help dividend payers and value stocks in general, which have really struggled this year.

Today, we're going to take a look at 11 of the best monthly dividend stocks and funds to buy in 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.

That means this list isn't particularly diversified, and it doesn't make a comprehensive portfolio. So you wouldn't want to completely overload your portfolio in stocks that pay monthly dividends. But they can certainly fill an important niche by delivering income stability.

Data is as of Dec. 6. 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: $21.5 billion

Dividend yield: 4.6%

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 4.6%, which isn't too shabby. 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 604 consecutive monthly dividend payments and has raised its dividend for 92 consecutive quarters. And since its initial public offering (IPO) in 1994, the dividend has grown at a compound annual growth rate of 4.5%.

As a retail landlord, 2020 hasn't been a particularly easy year for Realty Income. Its top 11 tenants include gym chains LA Fitness and Lifestyle Fitness, as well as movie theater chains AMC Entertainment (AMC) and Regal Cinemas. It should go without saying that these types of businesses have really struggled during the pandemic.

But this also is why Realty Income is an interesting choice for 2021. By the middle of the year, the COVID vaccine should be at least partially distributed. And as the pandemic peters out, Realty Income's most sensitive tenants should enjoy a nice recovery.

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

LTC Properties

Market value: $1.5 billion

Dividend yield: 5.9%

2020 was also a tough year for 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.

The COVID pandemic hit nursing homes particularly hard and continues to do so today. The elderly are particularly susceptible to the effects of the virus, and true social distancing is hard when the residents need regular medical attention. We will never know the real number, but it's safe to assume that a significant number of would-be senior tenants have opted to postpone moving into a senior living property due to virus fears.

But it's also important to remember that this too will pass. While the next several months will be challenging, the longer-term demographic trends here are great. The aging of the Baby Boomers should still to create unprecedented demand for senior living and nursing home properties in the coming years, and LTC will be there to meet it.

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

Stag Industrial

Market value: $4.4 billion

Dividend yield: 4.8%

Not all REITs got zinged by the pandemic. Some did just fine, and actually saw demand for their properties increase.

As a case in point, take a 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 16% of all retail sales 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 Stag 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 for 2021. It's a small, conservatively financed company in a large and growing market. And it pays a nice monthly dividend of nearly 5%. Not too shabby.

Dynex Capital

Market value: $417.3 million

Dividend yield: 8.7%

Mortgage REITs (mREITs) are usually a sleepy corner of the market. The 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, the model came under major stress in March 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) got slammed by the volatility that overwhelmed the sector. At the low in March, Dynex had lost nearly two-thirds of its value.

Since then, the shares have been steadily rising and are now nearly at breakeven for the year. And 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 Dynex, as one of the highest paying monthly dividend stocks at 8.7%, looks particularly juicy. Meanwhile, BTIG analyst Eric Hagen (Buy) says the company can deliver 9% to 11% returns at current leverage, and even more if credit spreads widen.

Main Street Capital

Market value: $2.1 billion

Dividend yield: 7.6%

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 companies. The average size of a portfolio investment is just $13 million. These are companies that have outgrown their local bank or the 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 COVID recession has wrecked the proverbial Main Street. Small service businesses have really had a difficult time navigating the stay-at-home economy.

But remember: We're looking forward into 2021. 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 gets back to something resembling normal next year, MAIN should be one of the best monthly dividend stocks.

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 bonus payouts. 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 7.6%.

Prospect Capital

Market value: $2.1 billion

Dividend yield: 13.3%

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.

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.

While the stock took its lumps back in March, shares have recovered some of the lost ground, but not all – shares remain off 16% for the year-to-date. So at today's prices, the BDC yields a hefty 13.3%.

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 nearly 31 million shares, at a cost of over $144 million, in 2020 alone. Whatever decisions management makes, you can't say they don't have skin in the game.

Gladstone Capital Corporation

Market value: $278.0 million

Dividend yield: 9.0%

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 $280 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 48 companies in 18 industries. And importantly, the company has very low exposure to problematic sectors of the economy. For example, energy, which may struggle for years with oversupply issues, makes up only 5.8% of the portfolio.

Gladstone Capital also is one of the highest-paying monthly dividend stocks on this list, yielding a supple 9.0% at current prices.

DoubleLine Income Solutions Fund

Assets under management: $1.7 billion

Distribution rate: 11.0%*

Discount/premium to NAV: -5.2%

Expense ratio: 3.00%**

If you prefer more diversification than individual monthly dividend stocks, several fundss 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 $140 billion under management.

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

DoubleLine Income Solutions has a quirky portfolio. The bulk of the portfolio is invested in corporate debt, but the fund has sizable positions in asset-backed and securitized bonds, mortgage securities and even bank loans. It's also internationally diversified. Only about 40% of the fund is invested in the United States. It also has a 43% slug invested in emerging markets, such as Mexico and Argentina, and the remaining 17% is scattered across developed non-U.S.

The emerging markets exposure is perhaps the most interesting aspect of this pick. If the world gets back to something resembling normal in 2021, emerging markets securities should benefit. And in DSL, we have access to those markets while we collect the 11% monthly dividend.

* 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.

** Includes 1.45% in management fees, 0.17% in other expenses and 1.39% in interest expenses.

Cohen & Steers Closed-End Opportunity Fund

Assets under management: $326.2 million

Distribution rate: 8.7%

Discount/premium to NAV: -5.2%

Expense ratio: 0.96%**

This time of year, it's common to see matryoshka dolls as part of the holiday décor. These are the nested dolls inside of dolls (inside of dolls, inside of dolls …) iconic to Russia.

Well, you can think of the Cohen & Steers Closed-End Opportunity Fund (FOF) as a matryoshka doll of sorts. It's another closed-end fund that invests in other closed-end funds. In fact, the ticker symbol "FOF" is short for "fund of funds."

While most of the fund's portfolio is invested in other CEFs, it also invests in exchange-tradaed funds (ETFs). About 6% of the portfolio is invested in S&P 500 index ETFs, and another 3% is invested in the SPDR Gold Trust ETF (GLD).

Cohen & Steers Closed-End Opportunity Fund's mandate is broad. It seeks to achieve high total returns comprised of both income and capital gains. But at time of writing, its underlying holdings are definitely weighted most heavily to stocks. About 60% of the portfolio is invested in equity funds, 21% is invested in taxable fixed income funds, 11% is invested in municipal bond funds and 7% is invested in commodity funds, which would include gold.

At current prices, FOF trades at a discount to its net asset value (NAV) of about 5%, which means you're effectively buying the fund's assets at 95 cents on the dollar. But remember, this is a closed-end fund that holds other closed-end funds, many of which also trade at discounts to NAV. Discounts on top of discounts are a value investor's dream!

FOF yields an attractive 8.7%, paid monthly.

** Includes 0.95% in management fees and 0.01% in other expenses.

Tortoise Essential Asset Income Term Fund

Assets under management: $180.6 million

Distribution rate: 6.7%*

Discount/premium to NAV: -17.4%

Expense ratio: 1.51%**

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

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 like 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 incoming 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. 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. If you have any experience with CEFs, you'll understand why that's a big deal. CEFs regularly trade at deep discounts to net asset value, meaning that they are essentially worth more dead than alive. That might sound like a value investor's dream, but without a catalyst to force the share price back to net asset value, a cheap fund can stay cheap forever.

The fact that TEAF liquidates at net asset value means that, apart from the attractive 6.7% 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 more than 17%.

** Includes 0.83% in management fees, 0.43% in other expenses and 0.25% in interest expenses.

Vanguard Short-Term Corporate Bond ETF

Assets under management: $35.0 billion

SEC yield: 2.0%*

In a bull market, cash is trash. Of course, bull markets don't last forever, and we don't know what the market will do 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 me 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 3.1 years.

You won't find junk in VCSH. This is an investment-grade bond ETF with 45.5% of its portfolio in A-rated bonds and 45.6% in BBB. Most of the remainder is invested in AA-rated bonds.

Annualizing the most recent monthly dividend gives us an expected dividend yield of just shy of 2%. 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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