Most dividend-paying companies in the U.S. tend to pay their dividends on a quarterly basis. However, for investors looking for more frequent payouts to help supplement their income, there are some companies that pay out their dividends on a monthly basis.
Let's look at three stocks that cut investors a check each month and see whether they currently look like good investments.
1. Realty Income
NYSE: O
Key Data Points
Known as "The Monthly Dividend Company," Realty Income (O 1.42%) has long prided itself on sending its investors a monthly dividend check. In fact, it has paid out 649 consecutive common-stock monthly dividends and raised it 126 times.
While the stock has struggled a bit the past five years, with its stock price down more than 15% during that time, the real estate investment trust (REIT) continued to pay a steady and rising dividend. Part of the stock's struggles come from higher interest rates and the impact that has had on commercial property values, which are valued based on capitalization (cap) rates -- a property's net-operating income divided by its current value.
As interest rates climbed, so have cap rates. With real estate investors demanding higher cap rates when properties are sold, the value of existing properties that were bought at lower cap rate is impacted. It's very similar to the interest-rate risk that bond investors face.
However, with interest rates stabilizing and investors expecting the Federal Reserve to cut rates in September, this could be a great time to buy the stock, as commercial property values could be set to rebound with lower interest rates. At the same time, Realty Income has been nicely expanding its property portfolio the past few years at attractive valuations, especially in Europe. In the first quarter, the REIT bought new properties with an initial weighted average-cash yield of 7.8% overall, including 8.2% in Europe.
As such, this looks like one of the best opportunities in many years to buy Realty Income and start collecting a stable monthly check. The company recently announced a $0.263 dividend for July, which is good for a 5.6% yield.
2. AGNC Investment
NASDAQ: AGNC
Key Data Points
Similar to Realty Income, AGNC Investment (AGNC +1.35%) is a REIT whose stock has struggled the past few years due to higher interest rates. Unlike Realty Income, which owns commercial real estate properties, AGNC invests in mortgage-backed securities (MBS) that are backed by government or government-sponsored agencies such as Ginnie Mae, Fannie Mae, and Freddie Mac and thus carries minimal credit risk.
The company basically owns a portfolio of mortgages and makes money off the spread between the yield of its investments and the short-term funding costs to buy them. It locks in the spreads with hedges and then uses leverage to increase its returns.
Image source: Getty Images.
When the Fed began increasing interest rates, mortgage rates followed suit. The value of AGNC's holdings not surprisingly tumbled as reflected in the nearly -50% decline in tangible book value AGNC saw from the start of 2022 until the end of 2023. However, AGNC's tangible book value has increased each of the past two quarters going from $8.08 at the end of September 2023 to $8.84 at the end of March 2024.
With the Fed expected to start cutting rates in September, AGNC should begin to see even more benefits. The REIT currently pays a $0.12 a month dividend, which is good for about a 13.7% yield. It currently is valued at about 1.19 times book value, which is pretty typical for the stock, and it should have strong potential upside if the Fed continues to lower rates over the next few years.
AGNC Price to Tangible Book Value data by YCharts.
3. Main Street Capital
NYSE: MAIN
Key Data Points
Another stock that pays a monthly dividend is Main Street Capital (MAIN 1.76%), which is a business development company (BDC) that invests in the debt and equity of lower-middle-market companies. The BDC typically likes to invest in companies with revenue between $10 million to $150 million and EBITDA (earnings before interest, taxes, depreciation, and amortization) between $3 million to $20 million. It had investments in 191 portfolio companies at the end of Q1.
Main Street has been highly successful over the years. It has never decreased its monthly dividend rate and has seen its dividend more than double over the past 17 years. It's also grown its net-asset value (NAV) by 130% since 2007. The BDC currently pays a monthly dividend of $0.245 per share, which is good for a yield of 5.7%, and it has also paid a number of supplemental dividends as well, including $0.30 in June.
If there is one knock on Main Street, it is valuation. The company recently projected that its NAV for Q2 would be between $29.77 to $29.83. At the high end, that values the BDC at 1.7 times the value of its portfolio. That's one of the highest valuations in the BDC sectors, with the sector as a whole trading closer to 1 times NAV. Nonetheless, investors are still getting a high-quality performer that pays a monthly dividend.
