When markets are volatile like they have been the past few months, investors may find comfort in dividend stocks. Typically, the best dividend-paying stocks are those of large, established companies that produce stable returns and are less volatile. Quite often, they are value stocks.
Not only do they provide ballast for a portfolio during times like this, but they also generate regular income for investors that comes no matter what the stock price is doing. Most dividend-paying stocks distribute payouts on a quarterly basis, but there are some that put money in your proverbial pocket each month. Here are two of the best stocks for monthly dividends.
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1. Ellington Financial
Ellington Financial (EFC 0.17%) is a mortgage real estate investment trust (mREIT) that invests primarily in residential loans, along with commercial mortgages and commercial loans, with about two-thirds of its portfolio in residential mortgages. As a REIT, it acquires or originates mortgages and mortgage-backed securities and earns interest on the investments. In the third quarter of 2021, the total equity of the portfolio rose 14% over the previous quarter to $1.1 billion, and core earnings rose 2% to $26.4 million.
REITs are required by federal law to return 90% of earnings to shareholders via dividends, so they are generally great investment vehicles for income investors. Ellington pays out its dividend monthly, most recently declaring a per-share dividend of $0.15 on Feb. 7 at a yield of 10.3%. Assuming it pays out that same rate over the course of the year, that comes out to $1.80 per share annually.
Ellington switched to a monthly payment from quarterly in 2019 and got hit hard in 2020 during the pandemic-related recession and economic shutdowns. But it bounced back strong in 2021, as the stock price was up 26% last year. This year, the stock is up about 2.8% year-to-date.
The company reports fourth-quarter earnings on Feb. 23 and should provide some insight on its outlook for the year. (Corporate Event Data provided by Wall Street Horizon.)
But the market right now is favorable for REITs, as it is one of the few asset classes that benefit from inflation. Inflation pushes rents and property values higher, as well as interest rates, which makes the portfolios more valuable. That, in turn, helps support higher earnings and dividends.
2. Main Street Capital
Main Street Capital (MAIN +0.10%) is another stock that pays dividends monthly. It is a business development company (BDC), which provides financing for small- and middle-market businesses in the form of loans to grow their businesses. These are often companies too small to issue bonds or get financing from banks. Main Street Capital makes money off the interest repaid on the loans or through an equity stake if that is part of the deal.
Main Street Capital works in the lower end of the middle market, companies with annual revenue between $10 million and $150 million. The company has a portfolio that includes investments in 177 companies with roughly $5.1 billion in capital under management. Because most of its loans are structured as floating-rate loans, Main Street Capital should also benefit in a rising-rate environment.
BDCs, like Main Street Capital, that are considered registered investment companies (RICs) are required to distribute 90% of their taxable income to shareholders to avoid corporate taxes. So like REITs, they typically distribute most of that through dividends.
Main Street Capital has been remarkably consistent, as it has not lowered its monthly dividend since it went public in 2007. It currently pays out a monthly dividend of $0.21 per share at a yield of about 6%. In 2021, it paid out $2.58 per share in dividends, including an annual supplemental dividend.
The stock is currently trading at about $42.50 per share, down about 5.4% year to date. Economic growth should benefit Main Street Capital, reflected in the company's above-average pipeline of deals, as CEO Dwayne Hyzak explained on the third-quarter earnings call.
For income investors concerned about market volatility and the impact of rising interest rates on their portfolios, these two monthly dividend payers are worth a look.
