I’ll be the first to admit that I like a regular stream of cash flowing into my wallet. Dividends are particularly nice, because I don’t have to do much other than sit patiently in order for them to show up in my account. One way that’s almost guaranteed to offer that benefit is through investing in monthly dividend REITs.
Granted, investments that offer monthly dividends are a bit more rare than those that supply quarterly or yearly dividends, but they are out there. And REITs, or Real Estate Investment Trusts, are generally some of the more stable investment offerings around. The two of them together are like chocolate and peanut butter, or eggs and bacon, or, well, you get the idea. They just work well together.
But in order to look at the benefits of monthly dividend REITs, it’s helpful to separate them, and find out what makes each part of the whole so good for investors.
Breaking down the benefits of dividends and REITs
Let’s start with dividends. They’re really the secret behind some of the most lucrative investments.
Most stocks that pay dividends do so quarterly—that’s every three months. Public companies that send shareholders dividend checks every single month are rare. But the handful that exists tends to be laser-focused on rewarding shareholders and a source of very reliable income.
If you’re retired, stocks that pay dividends monthly are a perfect source of regular income you can use to pay bills, rent or buy groceries. Non-retirees also find monthly dividends attractive because they compound faster.
Beware, however, as monthly dividend payers can be high risk. You have to watch out for unsustainable business models as well as too-good-to-be-true yields. In other words, a monthly dividend is a nice bonus, but that shouldn’t be your main factor in deciding whether or not to invest in a company.
You need to search for investments with timelessness and longevity—companies that are sure to not only be around 20 or 30 years from now, but still thriving. Dividend stocks become more powerful and usually make up a larger part of your annual return, the longer you hold on to them.
What’s so great about REITs? Alright, dividend stocks are good. What about REITs? REITs trade like stocks and give investors the advantage of participating in large-scale commercial real estate projects. REITs must pass 90% of their taxable income through to shareholders. In exchange, they pay no corporate income tax. They can own any type of real estate, and many specialize in one type, like apartment buildings, malls, office buildings, self-storage facilities or hotels.
Generally speaking, REITs tend to offer high income, portfolio protection, diversification, and liquidity. REITs typically have more defensive businesses that tend to hold up well in a bad economy.
Even when investors get optimistic and greedy, they still have one foot on safety. Nobody knows when the party will end and it is nice to own stocks built for a downturn, especially when they perform in an up market as well.
Steady cash flow + location, location, location = monthly dividend REITs you can’t turn down
So what are the reasons to own monthly dividend REITs? Are they even worth looking for? Well, even though monthly dividend stocks are challenging to find, some of the best do happen to also be REITs.
So to put it all together, here are 10 reasons monthly dividend REITs are worth thinking about for your portfolio:
- Steady income
- Accelerated compounding if you reinvest your dividends
- Dividend-paying stocks are usually more trustworthy
- Their value grows the longer you hold them
- They are often lower risk
- Even when the share price falls, you still have dividend income
- REITs bring diversification to your portfolio
- REITs give you access to a growing real estate market
- Good monthly dividend REITs can have high yields
- Conservative real estate stocks hold up relatively well in a bad economy
Like any investment, it’s more important that monthly dividend REITs match your risk profile and are suitable for your investing needs. If that’s the case, prioritizing monthly payers over quarterly payers can make sense for the reasons above.
Now, if you want to know the names of some dividend REITs our dividend expert Tom Hutchinson is currently recommending to subscribers of his Cabot Dividend Investor advisory, click here.
*This post was originally published in 2022 and is periodically updated to reflect market conditions.