No matter your knowledge of stocks, it's important to understand the benefits that certain stocks can provide you. Monthly dividend stocks, for example, are profit distributions that a corporation makes to its investors. Along with providing you with a steady income, they also come with several other advantages. The more you understand these stocks, the easier it is to determine if they're a worthwhile investment. Learn more about what makes monthly dividend stocks a smart investment decision and the common advantages they provide you as an investor.
Steadier Income
Most companies that offer dividend stocks distribute payouts quarterly or annually. When you invest in monthly dividends, you get the benefit of a regular, steady payout that you can continually rely on. Generating passive income on a monthly basis is often more useful than waiting for a quarterly or annual distribution.
Ability to Increase Shares
Compared to quarterly dividend stocks, monthly dividends give you the opportunity to increase the number of shares you own at a quicker rate. When you purchase additional shares via dividend reinvestment, your monthly dividends allow you to accumulate more shares because you're reinvesting sooner than you would with a quarterly stock. This means your dividend income can compound at a faster rate thanks to the increased payout frequency.
Variety of Options
Several hundred companies pay their shareholders monthly dividends. Though monthly stocks tend to fall into only a handful of industries, you have a large pool of stock options to choose from. Some options include closed-end funds where stocks are traded on a stock exchange and real estate investment trusts, which refer to dividend payers who collect rent payments on a monthly basis. REITs have to distribute a minimum of 90% of their taxable income as dividends, meaning it's possible to earn larger monthly payout from an REIT.
No matter what your portfolio strategy is, you're sure to find a monthly dividend exchange-traded fund that offers what you're looking for. Additionally, investing in multiple companies that distribute dividends can greatly diversify your portfolio.
Flexible Selling Options
When you invest in a monthly dividend stock, you're able to sell without the added pressure of keeping it until you receive your distribution. If you invest in a company that makes quarterly or annual dividend payouts, you may feel like you need to hold onto the stock until you receive a distribution, which may not fit into your overall strategy.
Better Match With Monthly Expenses
If you plan on using your payout on personal expenses, such as rent and utilities, monthly dividend stocks make the payment process that much easier. Since you likely pay most of your bills on a monthly basis, you probably want to get your payouts monthly instead of budgeting for a quarterly or annual payout. Overall, they make it easier to budget your finances accordingly.
Now that you understand the benefits that come from this type of dividend stock, you're better equipped to determine if monthly payouts are best for you. Evaluate the companies offering the stock and consider if the pros outweigh the cons.
