One way to create the most steady income stream possible in your portfolio is to buy stocks that pay a monthly dividend. However, not every stock with a monthly payout is a suitable investments for every investor. Some monthly dividend stocks are quite safe, while others are more speculative and should be avoided by risk-averse investors.

Here's an overview of the types of stocks that often pay monthly dividends, along with some information about each to help you determine which could be good investments for you.

REITs can be solid investments, but know what you're looking at
Several real estate investment trusts, or REITs, pay dividends monthly. But it's important to know that there are two kinds of REITs and that they are completely different investments.

The most common are equity REITs, which actually own properties. Most specialize in specific types of real estate, such as apartment buildings or retail properties, and not only generate income but benefit as real estate values appreciate over time. Most equity REITs use relatively low leverage, produce a steady income stream, and are relatively low-risk investments.

For example, Realty Income, which is actually known as the "monthly dividend company," invests in retail properties and has an outstanding track record of growth and stability. Realty Income has raised its dividend 79 times in the past 20 years and has averaged a total return of 17.4% annually during that time.

The other class of REITs, known as mortgage REITs, or mREITs, do not own any physical real estate, but rather invest in mortgages and mortgage-backed securities. Basically, these companies borrow money at low short-term interest rates and acquire mortgages that pay higher rates. The spread between the two interest rates is their profit.

To produce the double-digit yields their investors expect, mREITs use high amounts of leverage (often five-to-one or higher) to supercharge their returns. As you can probably imagine, this creates high risk and volatility and leaves mREITs particularly sensitive to fluctuations in interest rates. In general, mREITs tend to have more volatile prices and shakier dividends than equity REITs, which makes them poor choices for investors who require steady income. In fact, the last time interest rates spiked rapidly (mid-2013), many mREITs were forced to slash their dividends, and the same could easily happen again in the future.

Here's a sampling of the REITs that pay monthly dividends, as well as the type of real estate investments they make

REIT Name Symbol Current Yield Types of Investments
EPR Properties
EPR 6.5% Education, entertainment, and recreational properties
LTC Properties LTC 5% Senior housing, long-term care facilities
Realty Income Corporation O 5.1% Freestanding retail properties
Chambers Street Properties CSG 6.2% Industrial/office properties
New York REIT NYRT 4.6% Income-producing properties in New York City
American Capital Agency AGNC 12.4% Mortgages

Business development companies: High yield but high risk
Business development companies, or BDCs, invest in the debt of small and midsized companies that can't (or choose not to) qualify for more traditional means of financing.

BDCs spread their investments out over dozens or even hundreds of companies, and they usually earn enough from their investments to pay dividends in the 10% range. In fact, one of the best arguments in favor of investing in a BDC, as opposed to other high-paying debt like junk bonds, is that it spreads your money out, thereby reducing the risk of losing your investment in the event of a default.

However, before you choose to invest in BDCs, make sure you do your homework. Some have shaky histories that include questionable accounting practices, the dilutive share offerings below net asset value, and generally shareholder-unfriendly management.

A few BDCs pay monthly dividends, so if this type of stock seems interesting, you might want to check out Prospect Capital, which is one of the highest-yielding names in the sector, or Main Street Capital, which, as my colleague Jordan Wathen recently pointed out, has delivered the best total returns of any BDC since the financial crisis.

Closed-end funds: The other monthly dividend stock
A closed-end fund is similar to a mutual fund in that it pools investors' money to make specific types of investments, but there is one key difference. Unlike mutual funds, which welcome new investors' money, a closed-end fund issues a fixed number of shares, which then trade on an exchange, just like a stock.

Many closed-end funds use various investment tactics to boost returns, e.g., using leverage and investing in derivative securities (such as options) in addition to simply buying stocks.

For example, the AllianceBernstein Income Fundinvests in a variety of fixed-income holdings and is one of the largest closed-end funds in the market. The fund's current dividend yield is about 5.6% -- quite high, considering the fund's primary investments are U.S. Treasuries.

To get you started, here are a few of the largest closed-end funds that pay monthly dividends -- but bear in mind that there are dozens more, with many different investment objectives and risk levels.

Fund name Symbol Current yield
Alliance Bernstein Income Fund ACG 5.6%
Nuveen Municipal Value Fund NUV 4.1%
PIMCO High Income Fund PHK 14.7%
Eaton Vance Tax-Managed Global Diversified Equity Income Fund EXG 9.9%

Final thoughts
Not all stocks in these three categories pay dividends monthly, and there are stocks in other categories that do. However, most monthly dividend stocks can be classified as one of the three types mentioned here. Like any other type of stock, monthly dividend payers come in all different shapes, sizes, and risk levels. Some, like equity REITs, are suitable for most income portfolios, while others (BDCs and mREITS) are more volatile and speculative. Whatever you do, be sure not to invest money you can't afford to lose into one of the high-risk monthly dividend stocks.

The right investment for you depends on your specific investment objectives. If you like the idea of a stock that sends you a check each month, then you might start your search with some of the options above.

Matthew Frankel owns shares of Realty Income. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.