Can Dividends Be Paid Monthly?

It is far more common for dividends to be paid quarterly or annually, but some stocks and other types of investments pay dividends monthly to their shareholders. The monthly payers may more often be related to commercial or residential real estate, since those businesses run on monthly cycles (i.e. rent).

Understanding Dividends

Many public companies pay dividends to their shareholders, typically in cash but sometimes in additional shares of stock. Shares of stock represent part-ownership in a company. Dividends are the shareholder's portion of the profit the company has earned. Given the day-trading mentality of many individual investors, it's easy to lose sight of those facts.

Not all public companies pay dividends. Companies can prioritize growth by hanging onto its capital to invest their profits back into the business. Their investors would then (theoretically) have price appreciation growth in the price of their shares.

Cash dividends are issued as a dollar amount paid per share of stock owned, so all investors receive dividends commensurate with their ownership stake in the company. For example, if company ABC has seven million shares outstanding and declares a 50 cent dividend, it pays $3.5 million in total dividends. A shareholder who owns 2,000 shares receives $1,000.

Seeking the Dividend Stars

Investment in dividend-paying stocks is a popular way for many to supplement their existing incomes, particularly in retirement.

Dividends on common stocks are not guaranteed. Whether a dividend will be paid, and in what amount, is decided by the board of directors while looking at the actual numbers on the company's profits for each period. (Only preferred stock shares guarantee dividends, and these types of shares are a kind of hybrid of a stock and a bond.)

However, some companies are considered dividend stars because of their steady and generous dividend payments to common shareholders. They tend to be mature companies with stable earnings in industries like consumer staples and utilities.

Occasionally, a company that is doing quite well may choose to issue a very large one-time dividend that can provide a generous windfall for big investors. In 2004, for example, Microsoft (MSFT) paid out an unprecedented $3-per-share dividend, paying out a total of $32 billion.

Benefits of Monthly Dividends

If you are looking to maximize your retirement income, an investment in stocks that pay monthly dividends can be a great help. Having a steady stream of income throughout the year makes balancing your day-to-day budget much easier. In addition, dividends can be more stable compared to capital appreciation, so it's easier to plan using dividend cashflow compared to selling stocks that have appreciated in price.

However, one of the chief benefits of monthly dividends is the opportunity they offer the investor for reinvestment and compounding. Dividend reinvestment means using the dividend funds to purchase additional shares of stock.

Many stock trading sites offer the option of automatically reinvesting your dividends. As the number of hares you own grows each year, so does your dividend, assuming the company's dividends remain stable.

Who Pays Monthly Dividends?

Companies in certain industries are more likely to pay monthly dividends than others, so it pays to do your research. Real estate investment trusts (REITS) receive their income in the form of monthly rents, so it makes sense that some REITs also pay monthly dividend distributions.

Other companies required by tax law to pay out the majority of their income to shareholders are likely candidates for monthly dividend payments, as they need to redistribute their earnings regularly to avoid taxation. These companies tend to be trusts or partnerships. They do not produce a product or service but own rights to royalties.

Qualifying for a Dividend

Many people choose stocks for their history of paying dividends. However, timing is everything when it comes to qualifying for the payments. When a company declares a dividend, it also announces the ex-dividend date, which is the date after which any new share purchases are ineligible for the current dividend.

For example, if ABC company declares an ex-dividend date of April 15, the owners of stock purchased on or after April 16 do not receive the dividend. The dividend is paid to the shareholder who owned the stock prior to April 15, even if that person no longer has a financial interest in the company.

Downsides to Monthly Dividends

One significant drawback is the administrative and logistical burden on companies. Distributing dividends every month requires more frequent processing, accounting, and management of cash flows. This increases operational costs, meaning companies are technically less profitable if monthly dividends come with extra costs to process.

Throughout this article, we've highlighted the real estate industry. On that note, companies might struggle to maintain consistent monthly payouts, especially during periods of financial instability or economic downturns. Companies that do not run on monthly cycles might find it hard to come up with the cash every single month for their dividend. On the other hand, companies that pay quarterly have three months to collectively come up with enough cash.

Finally, from a market psychology standpoint, the frequency of dividend payments might influence investor sentiment. Monthly dividends can be perceived as a sign that a company is prioritizing short-term income over long-term growth. While this is technically true, this perception might deter long-term investors who are more interested in the company's growth potential. There are optics to monthly dividends,

Examples of Companies Paying Monthly Dividends

The list below shows the ten largest companies currently listed on the NASDAQ, NYSE, or NYSE that pay monthly dividends. This list is as of July 23, 2024, and information is sourced from Stock Analysis. Keep in mind that a company may choose to change, alter, or suspend its dividend policy at any time.

The Bottom Line

Monthly dividends provide investors with regular income, offering more frequent payouts than quarterly dividends. However, they can increase administrative costs for companies and result in smaller, less impactful individual payments for shareholders.