Before I started investing for income, I had money in regular bank accounts and money market accounts. This is a good place to start particularly if you want to accumulate money that you want to eventually put into other investments. Also, even if you do invest, you will still want to keep some of your money in these very liquid accounts just in case you need it.
Accounts that you have at banks will typically pay interest every month. Typical public market investments pay dividends or interest quarterly. Some overseas stocks (e.g., European common stocks) pay even less frequently, typically twice a year.
If you want to earn money monthly how can you do this with typical public investments? Here are a few ideas.
Buy an Income Fund
If you are willing to consider a managed income fund, it’s not hard to find ones that pay out monthly. I’m not a big fan of funds due to investment costs and the fact that you don’t really have much control on what’s inside of the fund, you have to be able to trust the management. I do make some exceptions, e.g., in the IncomePort, we own some shares of a municipal bond fund (NNJ). Municipal bonds as well as other bonds are more difficult to buy and own directly so a fund can work here. (Treasuries are an exception, they can be easily bought directly from the Federal Government). Municipal bonds are exempt from your state income (in my case, New Jersey) as well as federal income taxes. These are a good addition to your portfolio.
Buy A Stock That Pays Out Monthly
There are stocks that pay dividends monthly, but these are rare due to the extra burden. It requires more administration and cost because each payment must be planned within the companies business model as well as all the documentation that is required from the SEC for each payment (a filing needs to be submitted for each one). As you will see below, those companies that have chosen to pay out monthly do it because they can easily based upon their business model.
Here are two examples. Because these companies earn rent every month off of real estate, they can chose to pay monthly.:
There are some other examples, including timber and energy trusts.
- Enerplus Resources Fund (ERF) – We own this in the IncomePort
For a long list of stocks, trusts, and funds that pay out dividends monthly check out this seekingAlpha article. It’s out of date but still offers a good starting point.
Create An Income Stream With Multiple Stocks
By choosing multiple stocks with different monthly dividend payment dates within a quarter, it’s possible to create a monthly income stream. This is harder to do with common stocks, because you would want to pick stocks primarily by their individual merits, and not when they pay out. However, preferred stocks offer a good opportunity since they are often similar/interchangeable especially if you pick ones offered from the same company. Within the IncomePort we have already a good start in the creation of a monthly income stream using preferred stocks. I talked about preferred stocks previously in this article along with some reasoning why you would want to own these stocks. A recap:
The IncomePort contains a few investments that offer the potential to earn 8%/year over the long term. No more, no less. These investments are a type of stock called preferred stock. It’s a bit of a misnomer to call these investments ‘stock’. This is what they have in common with typical common company stock:
- There is the word ‘stock’ in the name.
- They can be bought/sold just like stocks on exchanges.
That’s it. These investments have more in common with bonds, which are loans made to the company. Preferred stocks work the same way:
- Investors loan the company a bunch of money.
- The company periodically (typically quarterly) makes a fixed interest payment.
- The loans can go on for many years (30 years or more), sometimes never expiring because they can be renewable.
- The investment can be ‘called’ (closed out) as determined by its underwriting rules.
Typical preferred stocks pay out interest quarterly. However, by buying a set of preferred stocks that pay dividends at different months, we can structure a portfolio that mimics a monthly dividend simply by buying at least (3) different ones -one for each month in a quarter. Doing a little bit extra leg work, I’ve come up with a list that goes one step further – getting payments every two weeks. Here’s the list, along with when each security would pay its dividend in the first quarter.
krb-d 1/1 – in the IncomePort
hcn-d 1/15 – in the IncomePort
cfc-b 2/1 – in the IncomePort
All of these preferred stocks (including the ones not in the portfolio) are recommended. Each is an investment grade security as per Moody’s.