A:

Though it is more common for dividends to be paid quarterly or annually, some stocks do pay monthly dividends.

Dividends: The Basics

Companies pay dividends to their shareholders, typically in cash, as a means of expressing thanks for their continued support. Dividends are issued as a dollar amount paid per share of stock owned, so each investor receives a dividend commensurate with her ownership stake in the company. For example, if company ABC has 7 million shares outstanding and declares a 50-cent dividend, it pays $3.5 million in total dividends. A shareholder who owns 2,000 shares receives $1,000.

Dividend Income

Investment in dividend stocks is a popular way to supplement existing income because it requires little effort. Though dividends are not guaranteed on ordinary shares of stock, many companies choose to pay dividends each year, or each month, as a way to demonstrate their continued profitability. In some cases, companies that have done quite well may choose to issue one very large dividend that can provide a generous windfall for big investors. In 2004, for example, Microsoft paid out an unprecedented $3 dividend per share, for a total of $32 billion.

Benefits of Monthly Dividends

Especially if you are looking to supplement monthly retirement income, stocks that pay monthly dividends can be a great help. In addition to the benefit of having a steady stream of income throughout the year, having reliable monthly dividend income makes balancing your day-to-day budget much easier.

However, one of the chief benefits of monthly dividends is the opportunity for reinvestment and compounding. Dividend reinvestment is simply the practice of using dividend funds to purchase additional shares of stock.

Many trading platforms offer the option of automatically reinvesting your dividends for you, meaning your investment grows without you even lifting a finger. As the number of shares you own grows, so does your dividend each year, assuming the company's dividends remain stable. When you retire, you can begin taking your monthly dividends in cash to supplement income from your 401(k) or IRA account.

Who Pays Monthly Dividends?

Companies in certain industries are more likely to pay monthly dividends than others, so it pays to do your research. Real estate investment trusts, or REITs, receive monthly income in the form of rents, so it makes sense that some REITs also pay monthly dividend distributions. Other companies required by law to pay out the majority of their income to shareholders, such as REITs, are likely candidates for monthly dividend payments as they need to redistribute their earnings regularly to avoid taxation.

Qualifying for a Dividend

Many people purchase certain stocks specifically because of the likelihood of receiving dividends. However, timing is everything when it comes to qualifying for dividends. When a company declares a dividend, it also announces the ex-dividend date, which is the date after which any share purchases are ineligible for the current dividend. If ABC declares an ex-dividend date of April 15, the owners of stock purchased on or after April 16 do not receive the dividend. Instead, the dividend is paid to the shareholder who owned the stock prior to April 15, despite the fact he no longer has a financial interest in the company.

RELATED FAQS
  1. Are dividends considered an asset?

    Find out why dividends are considered an asset for investors but a liability for the company that issued the stock, and learn ... Read Answer >>
  2. How do dividends affect retained earnings?

    Find out how distribution of dividends affects a company's retained earnings, including the difference between cash dividends ... Read Answer >>
Related Articles
  1. Investing

    How Dividends Affect Stock Prices

    Find out how dividends affect the price of the underlying stock, the role of market psychology and how to predict price changes after dividend declaration.
  2. Investing

    Why Dividends Matter

    Seven words that are music to investors' ears? "The dividend check is in the mail."
  3. Investing

    Put Dividends to Work in Your Portfolio

    Find out how a company can put its profits directly into your hands.
  4. Investing

    The 3 Biggest Misconceptions of Dividend Stocks

    To find the best dividend stocks, focus on total return, not yield.
  5. Investing

    AAPL: Apple Dividend Analysis

    Apple's dividend has had healthy growth ever since its 2012 reinstatement, thanks to Apple's continuously rising revenue, earnings and operating cash flow.
  6. Managing Wealth

    Are You Too Young To Care About Dividends?

    Find out why it's never too early to begin thinking about dividends and how dividend-bearing stocks and funds can grow your investment account effortlessly.
  7. Investing

    Don't Take Dividends For Granted

    Companies have been paying dividends to their shareholders since the 1600s and have given investors good reason to hold onto their shares for long time periods. For many investors, dividends ...
  8. Investing

    Which Is Best: Cash Dividend Or Stock Dividend?

    Cash dividends are paid to shareholders when a company decides not to use the money for operations, but instead, transfer economic value to its shareholders.
RELATED TERMS
  1. Dividend

    A distribution of a portion of a company's earnings, decided ...
  2. Dividend Policy

    The policy a company uses to decide how much it will pay out ...
  3. Cash Dividend

    Money paid to stockholders, normally out of the corporation's ...
  4. Accelerated Dividend

    Special dividends paid by a company ahead of an imminent change ...
  5. Stock Dividend

    A dividend payment made in the form of additional shares, rather ...
  6. Accumulated Dividend

    A dividend on a share of cumulative preferred stock that has ...
Hot Definitions
  1. Stagflation

    A condition of slow economic growth and relatively high unemployment - a time of stagnation - accompanied by a rise in prices, ...
  2. Notional Value

    The total value of a leveraged position's assets. This term is commonly used in the options, futures and currency markets ...
  3. Interest Expense

    The cost incurred by an entity for borrowed funds. Interest expense is a non-operating expense shown on the income statement. ...
  4. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  5. Pro-Rata

    Used to describe a proportionate allocation. A method of assigning an amount to a fraction, according to its share of the ...
  6. Private Placement

    The sale of securities to a relatively small number of select investors as a way of raising capital.
Trading Center