Income investing is popular among retirees who are seeking cash flows that replace their earnings from work, and dividend stocks are an important piece of that strategy. Most stocks pay quarterly dividends that are declared after their financial results have been calculated and announced, but some pay a monthly dividend.

Monthly dividends are nearly identical to quarterly ones, but they provide some benefits that might suit investor needs better. First, compounding gains by reinvesting monthly dividends leads to slightly better net returns than quarterly distributions of the same amount. On top of this modest benefit, retirees often rely on income from their investment portfolio to provide the cash from which they pay monthly bills and living expenses. Monthly payments make cash flow management simpler than quarterly ones, especially when most household expenses are incurred on a monthly basis.

The following three stocks pay dividends each month rather than each quarter, and income investors should consider their potential in an investment portfolio.

Large paper calendar with several months visible

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Realty Income

Realty Income (NYSE:O) is a large real estate investment trust (REIT) that has gained notoriety for its monthly dividend. REITs are popular vehicles among income investors for their unique structure. These entities avoid taxation on corporate profits by distributing the vast majority of earnings to shareholders on a regular basis. This results in steady and relatively large streams to shareholders, and many REITs bear dividend yields that meaningfully exceed market averages. The higher-yield opportunity is especially present this year, as COVID-19-related concerns have caused real estate industry stock prices to lag the total market by 21 percentage points.

Realty Income owns 6,500 commercial real estate properties for which tenants sign long-term leases. The company has continued to deliver strong results through the pandemic due to its concentration of tenants operating drugstores, convenience stores, dollar stores, and other similar businesses that were not completely disrupted by new social and legal restrictions. However, the REIT also has some exposure to properties such as movie theaters that are causing some concern among investors.

Realty Income's forward dividend yield sits at an attractive 4.62%. The company reported funds from operations (FFO) of $0.82 per share in the third quarter of 2020, which was roughly flat year over year despite the economic and health crisis at hand. Over that same period, the REIT paid out dividends of $0.7005 per share, so it appears that the distribution is sustainable at this time. Realty Income has averaged 4.4% annual dividend growth since 1994, and it has already declared an increased dividend for January 2021.

Global Water Resources

Global Water Resources (NASDAQ:GWRS) is a relatively small company that owns and operates 13 water, wastewater, and recycled-water utilities, most of which are located in the Phoenix, Arizona, area. Utilities are popular for income investors because they have relatively predictable financial results, and demand for their services tends not to fluctuate with economic cycles. This allows utilities to pay stable dividends, which retirees love.

Global Water has a steady monthly dividend that has increased roughly $0.001 since 2017 to $0.0243 per month but never fallen in that period. Income investors will love that reliability, but there might be some concerns about yield, growth, and stability. The 2% forward dividend yield is about average for S&P 500 companies, so it's by no means an exceptional income-generating opportunity. More concerning, the stock's payout ratio has been well above 100% since 2017, meaning that Global Water is paying shareholders more than it is taking in from operations. This is not sustainable over the long term, and the company's 5% to 6% average revenue growth rate is not high enough to suggest that it will quickly grow into the dividend.

Stag Industrial

Stag Industrial (NYSE:STAG) is another REIT that owns approximately 450 single-tenant industrial properties in 38 states. The majority of these properties are warehouses and distribution facilities. These tenants generate income for shareholders, but exposure to the industrial and e-commerce sectors also provides a growth opportunity. 

Stag has paid a stable monthly dividend of around $0.12 per share for several years, which has slowly risen by fractions of a penny every few quarters. The company has averaged double-digit revenue and earnings growth over the past three years, yet the REIT still pays an attractive 4.68% forward dividend yield. Importantly, the company reported adjusted FFO per share of $0.46 last quarter, well above the amount distributed to shareholders, indicating dividend stability. Although investors have justifiably avoided REITs due to uncertainty in the office-space and commercial real estate markets, Stag is in a somewhat better position relative to peers.