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2 Stocks That Cut You a Check Each Month

By Reuben Gregg Brewer – Sep 8, 2021 at 6:55AM

Key Points

  • Looking to replace a paycheck with dividends? Then monthly pay dividend stocks are a great solution.
  • Just because a stock pays monthly doesn't mean it's a good investment. You need to be picky.
  • These two high-yield monthly pay dividend stocks, sitting at different sides of the risk spectrum, are worth a close look.

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Both of these relatively boring dividend stocks pay monthly, but they have very different risk and yield profiles. Each is worth a look.

The one big problem with quarterly dividends is that their frequency makes it hard to create a budget. That's why so many investors favor monthly pay stocks, which gets you pretty close to replacing a paycheck if you are retired and living off the income your nest egg generates. There aren't enough monthly pay dividend stocks, but this pair of companies is pretty attractive, though at opposite ends of the risk spectrum.

1. Playing it safe

The No. 1 stock here, Realty Income (O -0.37%), actually calls itself "The Monthly Dividend Company." It's a real estate investment trust that owns a huge portfolio (over 6,500 properties) of single-tenant net lease assets. And it's just inked an all-stock deal to buy a peer that will push that figure to more than 10,000. It will be the undisputed king of the net lease sector.

A cow-colored piggy bank with coins around it.

Image source: Getty Images.

Net lease is an interesting space that is generally considered a pretty low-risk way of owning property. That's because tenants are responsible for most of the operating costs of the properties they occupy. That leaves REITs like Realty Income to -- vastly simplifying things -- sit back and collect the rents. It makes the difference between its cost of capital and the rents it receives, which is why size is so important here. Realty Income can spread its costs across a huge portfolio and, thanks to an investment-grade balance sheet, it has low debt costs.

Add in over 25 years of annual dividend increases to the mix (making Realty Income a Dividend Aristocrat), and the stock generally trades at a premium price. The dividend yield, at 3.9%, is toward the low side of the REIT's historical yield range. But that means raising capital via stock sales is cheap, so this negative isn't as bad as it seems. With a solid business, a long history of success, and a strong industry position for the future, conservative types might find that paying up for this monthly pay giant is worth the price of admission.

2. Out on a bit of a limb

The next name here, Canada's Pembina Pipeline (PBA 0.74%), operates in the out-of-favor energy sector. Given the global push to reduce the use of carbon-based fuels, that alone might turn investors off. But if you can stomach some uncertainty, it's worth taking a closer look at this monthly pay midstream company and its fat 6.4% dividend yield. That's because Pembina doesn't drill or oil and gas; it helps move these fuels, and the products into which they get turned, using a largely fee-based business model. Demand is more important than commodity prices. 

PBA Dividend Yield Chart

PBA Dividend Yield data by YCharts

The key here is to recognize that, while the world is making a transition to cleaner fuels, the changeover will take years to complete. In fact, Pembina expects demand for both oil and cleaner-burning natural gas to grow all the way through to 2040, nearly two decades from now. That suggests still-robust demand for its services for a very long time. To highlight this point, volumes across Pembina's systems are already higher than they were before the coronavirus pandemic hit and temporarily depressed energy demand.

With an investment-grade credit rating, a stable monthly pay dividend, and a solid business, Pembina may not be as risky as it seems. You just have to step back and look at the bigger picture. That's not to suggest that there's no risk or that clean energy isn't a growing and important issue to monitor, just that it appears there is plenty of time to benefit from Pembina's cash cow midstream business if you like collecting big monthly dividend checks.

Your next steps

Clearly, these are just quick thumbnail sketches of two attractive monthly pay dividend stocks. If one, or both, sounds interesting, you should consider investing in them. Although a bit pricey, Realty Income is appropriate for even the most conservative dividend investors. Pembina requires a stronger stomach because of the industry in which it operates, but if you can see that clean energy isn't going to be an overnight sensation, then it might be worth an investment, too.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool recommends PEMBINA PIPELINE CORPORATION. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Realty Income Stock Quote
Realty Income
O
$61.82 (-0.37%) $0.23
Pembina Pipeline Corporation Stock Quote
Pembina Pipeline Corporation
PBA
$35.81 (0.74%) $0.27

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