Please ensure Javascript is enabled for purposes of website accessibility

3 Stocks that Cut You a Check Each Month

By Rich Duprey – Updated Sep 28, 2020 at 11:58AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

These dividend payers should be able to balance risk with reward.

Many investors favor dividend-paying stocks for the recurring streams of income they provide, a benefit that is magnified when those companies pay shareholders on a monthly basis. Yet these stocks may also come with heightened risks, including a sensitivity to interest rate fluctuations, significant financial leverage, and the risk that a too-generous dividend might not be sustainable.

Those are all factors investors must keep in the forefront as they choose their dividend stocks. But the three below should allow investors to meet their needs on all fronts.

Word Dividends on chalkboard

Image source: Getty Images.

Gladstone Capital

Gladstone Capital (GLAD -0.65%) cut its monthly payout earlier this year as the coronavirus upended the economy, reducing the dividend from $0.07 per share to $0.065 per share -- a 7% shave, and a level where it remains today. While no one likes to see payments reduced, it was a prudent move.

As a business development corporation (BDC), Gladstone lends money to smaller businesses that can't easily access capital markets themselves. These businesses were upended by the pandemic. The good news is that most of Gladstone's investments are recovering now. And while they're not exactly household names, Gladstone is diversified across numerous industries, including aerospace, food and beverage, real estate, healthcare, publishing, and more, which should limit its downside risk while still providing significant opportunities for growth.

Gladstone sees a long road yet to travel before its businesses are back to full health, and its board will meet next month to decide what level future distributions will be. But the company has enough capital on hand to continue considering new investment opportunities. Even as net investment income declined by 7% last quarter, Gladstone was still able to invest in several new businesses.

Having come through the pandemic intact, and having already trimmed its distribution, Gladstone's existing level looks safe. At Monday morning's prices and with its current distribution rate, Gladstone looks attractively cheap with a yield of around 10.8%, which could be a strong income choice that carries only slightly elevated risk.

LTC Properties

LTC Properties (LTC -0.16%) is a real estate investment trust (REIT) that invests in skilled nursing facilities and senior housing properties, and it's poised to capitalize on strong economic tailwinds.

There's little question the graying of America's baby boomers will drive demand for housing for the elderly in the years to come. Although there are more immediate concerns related to COVID-19, the longer-term trend will factor heavily in LTC's favor. LTC doesn't operate these senior facilities, but rather invests in them, with a small property development business thrown in.

The concerns the market has right now are the legal and regulatory risks associated with nursing facility deaths arising from the coronavirus pandemic. Although many states forced care facilities to take in infected patients, leading to large numbers of deaths, the operators could still face a backlash. Further, the incidence of COVID-19 in such facilities will lead many to resist placing a loved one in their care, which could slow growth, but this ought to be a short-term issue. The longer-term outlook is still positive, making LTC Properties' monthly dividend of $0.19 per share, which yields 6.8% on an annualized basis, very attractive. Coupled with the stock being down more than 20% in 2020, there's good potential for an investor to realize both income growth and capital appreciation.

STAG Industrial

Another REIT to consider, STAG Industrial (STAG -0.71%) provides a level of comfort for income investors they might not find in REITs that concentrate on the residential housing market, or even the retail sector. Instead, STAG focuses on single-tenant light industrial buildings.

This segment -- think warehousing, distribution, and manufacturing facilities -- continues to power on throughout the pandemic due to the rise of e-commerce. Some 43% of STAG's portfolio handles e-commerce activity, and alone accounts for 2.5% of its annualized base revenue as STAG's largest tenant. As a result, revenue rose 21.7% in the second quarter, while funds from operations (FFO, the REIT equivalent of earnings) went up 23.6%.

STAG Industrial has a lot of room to grow and seems to find itself in a sweet spot for investors, with a monthly dividend of $0.12 per share that's yielding 4.8% annually. It has raised its dividend every year since going public in 2011, though the amount of the increase has eased in more recent periods.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Stag Industrial and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

Stocks Mentioned

Stag Industrial Stock Quote
Stag Industrial
$32.11 (-0.71%) $0.23
LTC Properties Stock Quote
LTC Properties
$38.50 (-0.16%) $0.06
Gladstone Capital Stock Quote
Gladstone Capital
$9.91 (-0.65%) $0.06 Stock Quote
$88.56 (-2.69%) $-2.44

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.