Income Investors Rejoice: Join the 1-Check-a-Month Club

With the future for Social Security looking bleak and the days of pension plans fast dwindling, investors must use their own savings to generate income during their golden years. But two challenges income investors face these days are rock-bottom interest rates and being stuck with a cash flow schedule that's not on your schedule. So what's a Foolish investor to do?

Battle for basis points
Limited options exist for folks who need investment income to bridge the gap between what comes in each month -- Social Security and (maybe) a pension -- and what is spent. Here's what some options look like these days for a 10-year, $100,000 investment.

Investment

Current Yield

Interest Received Over 10 Years

Value in 10 Years

Treasury Bill 1.56% $15,600 $100,000
Investment-Grade Bond 3.86% $38,600 $100,000
High-Yield Bond 7.76% $77,600 $100,000

Source: The New York Times.

Of course, an advantage with bonds is that you invest $100,000 and -- in most cases -- your $100,000 is returned to you at maturity. The disadvantage: You receive not a penny more.

Don't fret
We receive our retirement income monthly, and we pay our bills monthly, so why shouldn't our investments pay us the same way? One hassle-free way to achieve this is by buying a basket of rock-solid companies that pay their dividends in different months from one another.

I've compiled a basket based on the following criteria:

  • Diversified companies with strong, competitive positions -- Brand dominance or special niches help these tenacious companies sustain long-term profitability.
  • Strong yields -- Companies shelling out dividend yields at or greater than 3%.
  • Stable dividend histories -- Companies that have paid dividends for at least 15 years.

Five companies that fit these criteria are listed below.

Company

Annual Dividend Yield

Dividend Payout Months

MDU Resources (NYSE: MDU  ) 3% January, April, July, October
Merck (NYSE: MRK  ) 3.8% January, April, July, October
Health Care REIT (NYSE: HCN  ) 4.8% February, May, August, November
Intel (Nasdaq: INTC  ) 3.4% March, June, September, December
Realty Income (NYSE: O  ) 4.2% Every month

Source: Yahoo! Finance.

Collectively, this basket of stocks is diversified across four sectors -- utilities, health care, tech, and REITs -- and pays you income every month.

And remember that $100,000 mentioned earlier? Had it been invested a decade ago in these five stocks equally, an investor would have pocketed a nice $51,000 in dividends plus $64,000 in capital appreciation on top of the original 100 Gs. Of course, there's no telling what this basket will do over the next decade. But the dividends alone from these five stocks nearly outperformed the S&P 500, which returned 5.3% on average annually in the same period.

MDU Resources
North Dakota-based MDU Resources is a diversified energy and construction conglomerate. Most new drilling activity and recent acquisitions have been oriented toward oil instead of natural gas as MDU strategically reduces exposure to low-priced natural gas. Its cyclical businesses should gradually improve as the economy strengthens.

Merck
Merck possesses a strong portfolio of prescription drugs for human and animal health. Recently, Merck's growth has occurred primarily through joint ventures and acquisitions. These, coupled with its decent pipeline, should help its long-term growth prospects and navigation through its upcoming patent losses.

Health Care REIT
Health Care REIT has diverse ownership interests in health care properties located in the U.S. and Canada. While the company has decreased its percent of revenues derived from Medicare and Medicaid reimbursements, the company's revenues remain affected by reimbursements. Health Care REIT has paid a dividend since 1970.

Intel
Intel's semiconductors are inside virtually every tablet, laptop, and hard drive on the planet. The company has been criticized for being late to the mobile chip market, but it's quickly closing the gap. It is a thing of rare beauty to find a tech company that pays a dividend at all, let alone one that weighs in at a solid 3%-plus yield.

Realty Income
The company's large and geographically diverse portfolio spans across nearly all U.S. states. It leases its 27 million square feet of space to retailers, and current occupancy stands at just shy of 97%. Realty Income recently declared its 505th consecutive monthly dividend (that's right, nearly 43 years' worth).

If you're interested in even more dividend-paying stocks, check out our free report. It's jam-packed with nine dividend stocks including one medical equipment company that not only boasts a 98% customer satisfaction rating, but also has doubled its dividend payout since 2006. This report won't be available forever, so get your free copy today.

Fool contributor Nicole Seghetti owns shares of Intel. You can follow her on Twitter @NicoleSeghetti. The Motley Fool owns shares of Intel. Motley Fool newsletter services have recommended buying shares of Health Care REIT and Intel. The Motley Fool has a disclosure policy. 
We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (2) | Recommend This Article (6)

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  • Report this Comment On August 08, 2012, at 1:04 PM, Njja wrote:

    Finally an intelligent well thought out idea for the average investor in today's marketplace. I have done exactly as the writer suggests for my decades in the market. This allowed me to retire at 55 with no pension except the one I created with my investments.

    This is an excellent plan for anyone to consider, simply carefully select Blue Chip companies you are familiar with, carefully review their debt, profits and market plan, then manage your own money. If you were smart enough to earn it in the first place use your common sense to move to the next level.

    Remember Slow and steady gets it done. If you are looking for the instant million, you are not going to find it.

  • Report this Comment On August 20, 2012, at 10:32 PM, MHedgeFundTrader wrote:

    The Treasury bond market has just suffered one of the most horrific selloffs in recent memory, taking the yield on ten year paper up from 1.38% to an eye popping 1.83% in weeks, a three month high.

    Yields have just risen by an amazing 38%. This has dragged the principal Treasury bond ETF (TLT) down from $132 to $120. Those who were pining to get into this safe haven at a better entry point now have their chance.

    Rumors for the plunge have been as numerous as bikinis on an Italian beach. Some have pointed to a suspected unwind of China’s massive $1 trillion in Treasury bond holdings. Others point to the incredibly thin summer market trading conditions. Add to that a relentlessly heavy new issue calendar by the government. After all, they have a $1.4 trillion budget deficit to finance this year. That works out to $4 billion a day.

    Long term strategists point to more fundamental reasons. The spread between the ten year yield and the S&P 500 dividend yield is the narrowest in history. Even after the recent slump, equity yields still beat bonds by 20 basis points. This has never happened before. The smarter money began shifting money out of bonds into stocks months ago.

    However, I think that an excellent trading opportunity is setting up here for the brave and the nimble. There is a method to my madness. Here are my reasons:

    *US corporate earnings are slowing at a dramatic pace. Some 40% of those reporting in Q2 delivered revenues misses. They made up the bottom line by firing more people. This is the worst performance since early 2008. Remember how equity ownership worked out after that?

    *The high price of oil is now starting to become a problem and will inflict its own deflationary effects. If we maintain the 24% price hike we have seen in recent months, that will start to present a serious drag on the economy.

    *Fiscal Cliff? Has anyone heard about the fiscal cliff? This 4% drag on GDP growth, another name for a recession, is looming large.

    *Don’t forget that the rest of the world economy is going to hell in a hand basket. The China slowdown continues unabated, and a hard landing is still on the table. Europe is in the toilet. Japan’s growth is on life support.

    *The Chinese aren’t selling. They told me so. They are merely reallocating a larger portion of their monthly cash flow to Europe where yields are a multiple higher. They are doing this because I told them to. This helps support the Euro. Keeping the currency of its largest trading partner strong to preserve exports is in its best interest.

    *QE3? Remember QE3? Even if the Federal Reserve doesn’t implement this expansionary monetary policy, Europe will. And the Fed will probably join in 2013 when we head into the next recession.

    *Paul Ryan for VP? If elected, his death wish for the Federal Reserve will send asset prices everywhere plummeting, including stocks and bonds. Since Romney’s fumbled announcement, Treasury bond yields have soared by 25 basis points.

    There are many ways to play this game. Just pick your poison. The obvious pick here is to buy the (TLT) just over the 200 day moving average at $119. You could buy an October $120-$125 (TLT) call spread in the options market for a quick bounce. If you really want to get clever, you can sell short the $110-$115 call spread, which has a breakeven in terms of the ten year Treasury yield of 2.10%.

    The safe haven trade is not gone for good. It’s just enjoying a brief summer vacation.

    The Mad Hedge Fund Trader -

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